Arbitration/Employment/Enforceability/Unconscionability: 2nd District, Div. 1 Reverses Order Denying Motion To Compel Arbitration (Published), And 4th District, Div. 3 Affirms Order Denying Motion To Compel Arbitration (Unpublished) In Employment Cases
The Divergent Outcomes Are Explained By The Peculiar Facts (Of Course)
1. Cruise v. Kroger Co., B248430 (2/3 Aug. 27, 2014) (Aldrich, Klein – third member of panel unavailable).
Employer Kroger Co., parent of Ralphs, which had loaded an arbitration policy with one-sided provisions favoring the employer, moved to compel arbitration of an employment discrimination action. Unpersuaded that the arbitration policy really existed when the employee read and signed the employment application, the trial court denied Kroger’s motion.
In what could only be described as an ironic twist, the Court of Appeal accepted the trial judge’s finding that the stand-alone four-page arbitration policy may not have been part of the employment agreement, and concluded that here, that helped the employer — and possibly saved Kroger from having to defend an unconscionable arbitration policy.
Here, the employment application itself contained a broad agreement to arbitrate employment-related disputes, separate and apart from the arbitration policy document. The failure to incorporate the additional arbitration policy simply meant that the relationship between the parties would be governed by the California Arbitration Act, requiring an arbitrator to be chosen pursuant to the provisions of the CAA.
Also, the employer’s failure to incorporate the arbitration policy document very possibly stopped the Court of Appeal from torpedoing that policy, because the arbitration policy presented serious lopsidedness issues. Under the terms of the arbitration policy, arbitrators from the AAA and JAMS were not permitted to administer the arbitration – making it more likely, in the view of the trial judge, that Kroger would be able to hand-pick an individual arbitrator dependent on Kroger’s patronage. The trial judge also found that a fee provision requiring plaintiff to pay 50% up front for the arbitration was unconscionable under Armendariz. Also, the arbitrator was only empowered to resolve a fee dispute if there was on-point US Supreme Court authority .
Fortunately (at least for the employer), because Kroger was unable to establish the contents of the arbitration policy were effective, the arbitration was controlled by California statutory and case law. Therefore, plaintiff’s arguments “that Kroger’s Arbitration Policy is procedurally and substantively unconscionable are meritless.”
2. Carter v. Fannie Mae, G049112 (4/3 Aug. 26, 2014) (Bedsworth, Fybel, Thompson) (unpublished).
Carter sued her former employer, Fannie Mae, for whistleblower retaliation. Fannie Mae moved, unsuccessfully, to compel arbitration, and appealed. The Court of Appeal explains that Carter did have an implied-in-fact agreement to arbitrate, but that the agreement is one-sided, and therefore substantively unconscionable. Specifically, “the contract cannot be enforced because it exempts the kinds of claims that Fannie Mae is likely to bring against employees, such as trade secret claims.”
The Court of Appeal refused to sever the unconscionably one-sided provisions: “We would have to rewrite the arbitration clause – which we cannot do – or somehow choose ‘what to leave in, what to leave out’ [quoting ‘Against the Wind,’ Bob Seger, 1980] which is also beyond our mandate.”
Comment: Note that Cruise v. Kroger, supra, didn’t address the need to sever, presumably because Kroger failed to establish that the provisions in its four-page arbitration policy, lopsided or otherwise, were ever part of the arbitration agreement.
Arbitration/Disclosure/Waiver: 5th District Narrowly Construes Statutory Language That Ethics Requirements Applicable To Arbitrators “Are Nonnegotiable And Shall Not Be Waived”, Concluding Certain Disclosure Requirements Can Be Waived
It All Depends On What “Waiver” Means
In United Health Centers Of The San Joaquin Valley, Inc. v. Superior Court of Fresno County, Case No. FO67763 (5th Dist. Aug. 25, 2014) (Gomes, Kane, Detjen), Dr. Jennifer Vradenburg-Haworth, the Real Party in Interest, sued her employer UHC in a wrongful termination case, was compelled to arbitrate, didn’t like the arbitrator’s award, and tried to get the trial court to vacate the arbitration award because the arbitrator admittedly failed to comply with the mandatory disclosure requirements of Cal. Code Civ. Proc., sections 1281.9 and 1281.85. And in fact she succeeded in getting the trial judge to vacate the arbitration award, prompting UHC to initiate a writ proceeding..
The trial court refused to follow Dornbirer v. Kaiser Foundation Health Plan, Inc., 166 Cal.App.4th 831 (2008), “in which the appellate court held that the statutory scheme does not require an arbitration award be vacated when the arbitrator has disclosed the grounds for disqualification generally, but has not provided all of the specific details required by section 1281.9, and the parties nevertheless agreed to proceed with the arbitration.” Why didn’t the trial court believe that Dornbirer was good law? Because Cal. Code Civ. Proc., section 1281.85(c) provides that ethics requirements and standards applicable to arbitrators “are nonnegotiable and shall not be waived.”
This required the Court of Appeal to confront whether Dornbirer has been overruled by the explicit statutory language – and just exactly what “waiver” means.
The Court of Appeal explains that “’’waiver’ can have multiple meanings.” The Court endorses the position that section 1281.85(c), was enacted to “prohibit contractual waivers of the statutory right to disqualify an arbitrator, not forfeitures of rights resulting from the failure to perform an act.” Given this narrow reading of the meaning of “waiver”, the Court rejects “Vradenburg-Haworth’s contention that Dornbirer has been overruled by statute.”
Because the trial court rejected the applicability of Dornbirer, it never reached "[t]he issue in this case . . . whether the facts, as presented in the declarations filed below, show that Vradenburg-Haworth’s attorneys had actual knowledge of a ground for disqualification before the arbitration commenced.” Therefore, the Court of Appeal granted the writ petition, and the superior court must now reconsider the parties’ petitions in light of the Court’s view that Dornbirer is good law, and that “waiver” can occur by sitting on one’s rights after learning of grounds for disqualification.
Comment: The rule applied by the trial court – that disclosure requirements are nonnegotiable and shall not be waived – is a bright and broad line. The narrower reading of the meaning of waiver, allowing for waiver of disclosure requirements when a party is “on notice of a ground for disqualification, yet failed to inquire further,” will require a more probing and complicated inquiry.
News/Employment/Arbitration: Outcomes Of Employment Arbitration Versus Litigation Are Quantified In Recent Study
Mark D. Gough Of The Cornell University School Of Industrial & Labor Relations Has Studied The Outcomes
Mark D. Gough has published in the Berkeley Journal of Employment and Labor Law the results of a study of some 700 employment discrimination cases – and the results are striking, whether looked at from the perspective of management or labor.
Matthew M. Sonne, an attorney with an employer-based practice, draws the following conclusion from Dr. Gough’s study: “Should the Company Utitilize Arbitration Agreements? A Recent Empirical Study Says, ‘Yes.’” The Pros and Cons of Employment Arbitration Agreements, Orange County Business Journal, August 18, 2014, p. B-53.
Hunter Pyle, an attorney with an employee-based practice, surely agrees that arbitration agreements benefit employers, but has a different slant, as represented by his blog post entitled, “The Profoundly Negative Impact of Arbitration on Workers’ Rights.” Workers’ Rights Blog, March 2, 2014, published by Sundeen Salinas & Pyle.
While I have not found Dr. Gough’s article on line, Mssrs. Sonne and Pyle have summarized some of the key findings:
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Employees pursuing employment discrimination litigation in courts were nearly 40% more likely to win. (Sonne).
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Employee discrimination awards in court were nearly twice as large as in arbitration. (Sonne).
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The average award to a successful discrimination plaintiff in court was $802,487, versus $412,052 in arbitration.
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“Arbitration decreases the odds of an employee win by 59%.” (Pyle).
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“Award amounts decrease by 35% in arbitration.” (Pyle).
Take a look at my earlier August 15, 2014 post entitled, “Executive Order Limits Pre-Dispute Arbitration Clauses For Federal Contracts Exceeding $1 Million In Title VII And Sexual Assault/Harassment Cases” – and draw your own conclusions.
Arbitration/Nonsignatories: Ninth Circuit Raps Browsewrap Contract, Affirming Order Denying Motion To Compel Arbitration
A Progression: From Shrink Wrap To Browsewrap To Clickwrap Contracts
Above: Shrink wrapped helicopters to be shipped to Iraq. US Navy photo, Bart Jackson. Wikimedia Commons.
In a case that will be important to e-commerce merchants, and on-line consumers, a Ninth Circuit panel holds that Barnes & Noble’s website provided insufficient notice of its Terms of Use, and thus, insufficient notice of an agreement to arbitrate claims. Kevin Khoa Nguyen v. Barnes & Noble Inc., No. 12-56628 (9th Cir. Aug. 18, 2014) (Noonan, Wardlaw, Silver).
The Terms of Use, available via a hyperlink in the corner of every page of the Barnes & Noble website, was part of a “browsewrap” agreement. The Court explains that contracts formed on the Internet “come primarily in two flavors” – “clickwrap” and “browsewrap.” With a clickwrap agreement, the user affirmatively consents to the terms and conditions of use by clicking on an “I agree” box. With a browsewrap agreement, however, “a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.”
The Court does not exactly chuck browsewrap agreements out the window, because it explains that “the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.”
“[P]roximity or conspicuousness of the hyperlink alone is not enough to give constructive notice,” explains the Court. Instead, something more is needed, “to capture the user’s attention and secure her assent.” Fn. 1. Here, even though the website link to Terms of Use may have been conspicuous, “there is no evidence that the website user had actual knowledge of the agreement . . . “
The Court holds, “in keeping with courts’ traditional reluctance to enforce browsewrap agreements against individual consumers”, that:
“where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on – without more – is insufficient to give rise to constructive notice.”
NOTE: This case should help e-commerce merchants see the benefits of clickwrap over browsewrap agreements.
Arbitration/Class: Trial Court’s Order Denying Class Certification Because Putative Members Signed Releases And Arbitration Agreements Is Reversed
Popping Affirmative Defenses Without Adequate Notice Surprised Plaintiffs
The employer here tried to gut plaintiff’s efforts to certify a class of 53 individuals in a wage dispute by producing evidence that “44 of those individuals had settled their claims or agreed to arbitrate their claims against the defendant.” The employer was successful in the trial court, because the trial judge denied certification on the ground that the putative class members were not numerous enough to be certified as a class. Plaintiffs appealed. Hendershot v. Ready to Roll Transportation, Inc., B247730 (2/3 Aug. 14, 2014) (Croskey, Klein, Aldrich).
The order was reversed on three grounds.
First, the court’s analysis of the “numerosity” factor was incorrect. There is no hard and fast rule on numerosity, and the trial court concluded that nine members was not numerous enough, without adequate explanation.
Second, by “essentially” ruling that the defendant’s affirmative defenses based on releases and arbitration agreements had merit, the trial court improperly considered the merits of the affirmative defenses – something it should not have done at the certification stage. One problem with this was that “these agreements did not require that the parties arbitrate their disputes until a party requested arbitration” – and defendant had not stated whether it would request arbitration. Fn. 8.
Third – and perhaps this is what bothered the Court of Appeal most – there was a lack of proper notice, because the releases and arbitration agreements were sprung on plaintiffs late. “The plaintiffs now argue that the assertion of these defenses took them by surprise and prejudiced them,” explained the Court of Appeal, adding: “It clearly did.” One senses a disapproval of sharp practices at work here.
News/Employment/Civil Rights: Executive Order Limits Pre-Dispute Arbitration Clauses For Federal Contracts Exceeding $1 Million In Title VII And Sexual Assault/Harassment Cases
Fair Play and Safe Workplaces Executive Order Is Announced July 31, 2014
One of the impactful judicial trends in recent years has been the expanded use of arbitration in employment disputes. Counter to that judicial trend is the recent Executive Order announced July 31, 2014 by the White House.
Section 6 of the Executive Order provides:
“Complaint and Dispute Transparency. (a) Agencies shall ensure that for all contracts where the estimated value of the supplies acquired and services required exceeds $1 million, provisions in solicitations and clauses in contracts shall provide that contractors agree that the decision to arbitrate claims arising under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment may only be made with the voluntary consent of employees or independent contracts after such disputes arise. Agencies shall also require that contractors incorporate this same requirement into subcontracts where the estimated value of the supplies acquired and services required exceeds $1 million.”
There are particular exclusions from this requirement for contracts or subcontracts for the acquisition of commercial items or commercially available off-the-shelf items; for employees covered by collective bargaining agreements; and, for valid contracts to arbitrate entered into prior to the bidding covered by this Executive Order.