California Court of Appeal Finds Employment Arbitration Agreement Barring Class Claims Unconscionable

By: Fey Epling

In Compton v. Superior Court of Los Angeles County, No. B236669 (2d Dist. Mar. 19, 2013), a divided panel of the Second District Court of Appeal reversed the Los Angeles Superior Court’s order compelling arbitration of her wage-and-hour class action complaint.

The Compton majority found the arbitration provision was substantively unconscionable because it was “unfairly one-sided” for four reasons.  First, the agreement exempted the employer from arbitration for injunctive relief on claims related to confidential information and trade secrets.  The majority did not find the carve-out of plaintiff’s claims for workers compensation, unemployment and disability claims sufficient to create parity.  Second, the majority found the imposition of a one-year time limit to arbitrate employee claims impermissibly shortened the applicable statutes of limitations; for a separate, but related reason, the court found this limitation was unfairly one-sided when compared with the three- and four-year statutes of limitation applicable to the unfair competition and trade secret claims preserved by the employer.  Finally, the majority found that the attorneys’ fees language undermined the employee-favorable statutory fee provisions.  Of some concern, the court declined to sever the offensive terms, finding the agreement to be “permeated by unconscionability.”

In an apparent effort to distance its opinion from AT&T Mobility, LLC v. Concepcion (2011) 131 S.Ct. 1740 and its progeny, the Compton majority emphasized that the Concepcion opinion arose out of a consumer arbitration agreement.  The court specifically found that Concepcion “did not abrogate the Armendariz one-sidedness rule,” i.e., “the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.”  Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83, 118.

The Compton court found that the agreement was also procedurally unconscionable because, regardless of “how conspicuous the arbitration agreement’s terms and advisements,” the employer’s reported conduct (hurried presentation and signature requested) “rendered them nearly meaningless” and demonstrated oppression.  The court also found that the information provided was one-sided because it did not sufficiently set forth the rights that were being waived, and because the rules of the applicable arbitration bodies were not provided to the employees in toto.

As a procedural side note, the panel was divided even on the basis for consideration of the appeal.  The dissent found that the appeal was appropriate pursuant to the “death knell” doctrine, and the majority side-stepped the issue by addressing the issue as a petition for writ of mandate.

The dissent raises a host of issues and highlights the unsettled conflicts between the Concepcion line of cases and California’s unconscionability principles, which have arisen primarily in the context of employee and consumer lawsuits.

Given the strong language in Compton and the court’s refusal to strike out the offensive terms, California employers may wish to engage in a review of their arbitration agreements in light of the Compton majority’s opinion.

Editor’s Update:

On June 12, 2013, the Supreme Court granted defendant’s petition for review, but deferred all briefing and further action in the matter pending its disposition of Sanchez v. Valencia Holding Co., S199119, the leading case on the related issue of whether the Federal Arbitration Act, as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, 131 S.Ct. 1740, preempt state laws invalidating mandatory arbitration provisions in a consumer contract on grounds of procedural and substantive unconscionability.

Would Your Wage and Hour Practices Withstand Scrutiny?

By: Laurie A. Holmes

These are real headlines from the last four days:

  • Holiday Inn at LA Airport Hit with Wage Class Action
  • Bath & Body Works Will Pay $1.3M to End Managers’ Wage Suit
  • Texas Sales Managers Hit Gold’s Gym with Overtime Suit
  • FedEx to Pay $10M to Settle OT, Meal Break Suit
  • Kraft Paying $1.75M to Settle Sales Workers’ OT Suits
  • ZipRealty Pays $5M to Settle California Agents’ Wage Claims

Similar headlines from the last two weeks would fill this screen.  And these headlines do not reflect a new trend – rather, they are just examples of the many similar headlines featured almost daily in Labor and Employment publications.  In fact, a record number of wage and hour lawsuits have been filed in the last 18 months.  And there’s no sign that they will be dwindling any time soon.

Why are these suits here to stay?  For one, with the availability of attorneys’ fees and liquidated damages, they’re a boon for plaintiffs and their lawyers.  For another, given economy-driven layoffs, potential plaintiffs may end up in lawyers’ offices more often, looking for ways to strike back.  And don’t think you’re protected just because the former employee signed a severance agreement.  Employees cannot release wage and hour claims, even if your agreement says otherwise.  Perhaps most compellingly, the Fair Labor Standards Act is not the easiest law to comply with.  Ever try to compute the regular rate when non-discretionary bonuses are paid every week and the amount varies?  Do you really know what “independent discretion and judgment” is?  Do you know if you need to count the time employees spend at home checking their email as “time worked”?

What are the most popular practices targeted by plaintiffs?

  • Failure to pay overtime – either because the employer doesn’t like paying overtime or because employees are misclassified as exempt.
  • Failure to pay overtime at the proper rate.
  • Paying workers less than the minimum wage, especially tipped workers.
  • Failure to provide uninterrupted meal breaks of the appropriate length.
  • Retaliation against workers who complain.

What should you do?  Short of making everyone non-exempt and prohibiting overtime, ask yourself how confident you are that your classifications are correct.  If you’re not confident, call your lawyer and schedule an audit.  Review a sampling of time and pay records to ensure that overtime was properly calculated and paid.  Not sure?  Call your lawyer.  Don’t have time records?  Groan.

Finally, don’t think you’re safe because your company is not big enough to be on anyone’s radar screen.  Ever heard of 888 Consulting Group?  Savvy Car Wash?  Geosite Inc.?  Quicksilver Express Courier Inc.?  ZipRealty?  Me either.  But all of these companies have been hit with wage and hour suits.  You may not be able to avoid being sued, but an FLSA audit before that happens could help you minimize the damages.