Arbitration/Employment/Interpretation/Enforceability: Despite Signed, Integrated Employment Contract Without Arbitration Provision, Employee Ends Up Bound to Arbitrate By Subsequent Unsigned Arbitration Provision
At-Will Nature of Employment Allowed Employer To Introduce New Policies Without A Signed Writing
At first, we were going to file this unpublished opinion under “go figure”, but we think we get it. In 2003, employee Krishna Papudesi, a systems analyst with Northrop, signed an integrated employment contract with her employer having no ADR provision whatsoever. The 2003 Agreement provided it “may not be superseded, amended, or modified except by written agreement signed by me and by an officer of the Company.” After the employee filed a class action wage and hour lawsuit against the employer, the employer petitioned to compel arbitration, based on a 2006 employment policy requiring arbitration of disputes. The trial court denied the petition, finding that the 2006 employment policy requiring arbitration was not a valid modification of the original employment contract. Employer appealed the denial of its petition to arbitrate. Papudesi v. Northrop Grumman Corp., Case No. B235730 (2nd Dist. Div. 1 Nov. 29, 2012; modified Dec. 4, 2012) (Chaney, J.) (unpublished).
The Court of Appeal reversed the order denying the employer’s petition to compel arbitration, concluding that “the arbitration policy did not modify the original employment contract but constituted a separate agreement.” Does this mean that all that an employer needs to do to get around an integrated contract lacking an arbitration clause is circulate an employment policy requiring arbitration of disputes? We don’t think it’s that easy.
The 2003 agreement covered (a) the at-will nature of Papudesi’s employment and (b) her obligation to comply with Northrop’s policies. The Court of Appeal, however, held that, “nothing prohibited Northrop from introducing new policies without a signed writing.” Thus, point one is that introducing a new policy pertaining to ADR was outside the scope of integration.
In addition, the Court of Appeal emphasized the “at-will” nature of the employment: “Northrop was therefore entitled to alter the terms of her employment by instituting new policies as it saw fit.” That’s point two. But query: if Papudesi had not been an at-will employee, would a separate agreement still have been outside the scope of the integration?. Does the decision turn entirely on the fact that Papudesi was an at-will employee?
Because Papudesi continued her employment with Northrop, she thereby accepted the 2006 arbitration provision.
Concluding that Northrop’s arbitration policy constituted an agreement that was “separate from and independent of Papudesi’s employment contract,” and that it was not unconscionable, the Court of Appeal remanded to determine if the “class action waiver provision may yet be unenforceable under Gentry [42 Cal.4th 83].”
Good News: Harbor Clerks and Management Reach Tentative Deal Just As Federal Mediators Are Called In
Deal Affecting Ports of Los Angeles and Long Beach Requires Approval of ILWU Rank and File
Above: Free Harbor Jubilee. Los Angeles and San Pedro. 1899. Library of Congress.
Only yesterday, we read that federal mediators were being called in to assist in settlement negotiations between the International Longshore and Warehouse Workers (ILWU) Local 63 and management. The costly strike has disrupted cargo traffic at the ports of Los Angeles and Long Beach. In fact, this morning we heard a person on NPR describing an aerial photograph of the scene as resembling the Normandy invasion!
Today the Los Angeles Times reports a tentative settlement has been reached, subject to ratification by union members. And that is good news.
Did the federal mediators make the difference? Dan Whitecomb and Steve Gorman report on December 5 in the LA Times: “Federal mediators called in to join negotiations at the mayor’s behest earlier in the day showed up just as the settlement was being reached.”
Arbitration/Employment/FAA/Class Action/Waiver: Second District, Division 1 Holds That Gentry Is Not Overruled By Concepcion or Stolt-Nielsen
Gentry Rides Again!
Franco v. Arakelian Enterprises, Inc., Case No. B232583 (2nd Dist. Div. 1 Nov. 11, 2012) (Mallano, J.) (published) is a long, scholarly opinion, containing a probing analysis of what may now be the hottest arbitration issue: how to resolve the collision between a class action waiver in arbitration and vindication of unwaivable statutory rights. Franco involves wage and hour, meal and rest period claims brought by an employee as a putative class action.
Gentry v. Superior Court, 42 Cal.4th 443 (2007) resolved the class action waiver issue with a multi-factor test, which when satisfied, results in the unenforceability under some circumstances of an arbitration agreement class action waiver, because the waiver would interfere with the employees’ ability to vindicate statutory rights. (We note, as does Justice Mallano, that vindication of unwaivable statutory rights and unconscionability have resulted in the application of two lines of cases in California that may lead to unenforceability of a class action waiver).
In Franco, the Court concludes, “that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff’s claims must be adjudicated in court, where the plaintiff may file a putative class action.”
Because Gentry applies here to invalidate the class action waiver, it is obvious that here, “the parties have not agreed in any fashion to allow class arbitration.” And because Stolt-Nielsen held that class arbitration is not permitted unless the parties expressly or implicitly agree to it, that is why Stolt-Nielsen requires hearing the case in court.
The key to Franco is an individualized application of the multi-factor Gentry test, leading to the conclusion that under the circumstances of this case, employees could not vindicate their statutory rights. This approach is to be distinguished from a categorical prohibition of class action waivers.
Two tips, one for the class action plaintiff, the other for defendants. The plaintiff needs to be prepared to present evidence through competent declarations that the multi-factor Gentry test for invalidating a class action waiver has been satisfied – something the plaintiff did present here. The tip for employers is that to survive the Gentry tests, the arbitration provisions would have to be fairly drafted in such a way that the employee could fully vindicate statutory rights in the arbitral forum – easier said than done.
For other recent posts that relate to unwaivable statutory rights, see our November 13, 2012 post on Richey v. Autonation, Inc. and our November 20, 2012 post on American Express Company v. Italian Colors Restaurant.
Arbitration/Class Action/FAA/Waiver: United States Supreme Court Grants Certiorari In American Express Company v. Italian Colors Restaurant
Can An Arbitration Class Action Waiver Be Enforced If The Plaintiff Would Not Be Able To Effectively Vindicate Federal Statutory Rights Through Arbitration?
The United States Supreme Court will soon decide whether its holding in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), concerning the enforceability of a class action waiver through an agreement to arbitrate, can be extended, or is limited to the facts in AT&T Mobility. American Express Company v. Italian Colors Restaurant, Case No. 12-133, 2012 WL 3096737 (U.S. Nov. 9, 2012) (“Amex”). As reported by Debra Cassens Weiss in the ABA Journal on November 12, 2012, the Supreme Court granted cert to hear this case on November 9, 2012, with Justice Sonia Sotomayor recusing herself.
Concepcion ruled that the Federal Arbitration Act pre-empted the rule existing in California (Discover Bank v. Superior Court, 134 Cal.App.4th 886 (2005))allowing consumers to avoid the contractual waiver of class-action rights by means of an agreement to arbitrate. Concepcion involved contractual issues and consumers unhappy with their cell phone provider.
Amex involves merchants unhappy with terms of allegedly burdensome credit cards issued by Amex that don’t require full payment, and that the merchants feel have been foisted upon them, in violation of the Sherman Anti-Trust Act. The issue in Amex involves whether the class-action waiver found in the arbitration provision can be enforced when federal statutory rights are at stake and it would be prohibitively expensive to bear the costs of arbitrating anti-trust disputes in order to vindicate federal statutory rights.
We found it interesting to see just how Amex and Italian Colors Restaurant had framed the issue for the Supreme Court. As our law professors sometimes reminded us, “to ask the question is to answer it.” Without comment, we quote the questions presented to the Supreme Court below.
As framed by Amex:
“Whether the Federal Arbitration Act permits courts,
invoking the ‘federal substantive law of arbitrability,’
to invalidate arbitration agreements on the ground
that they do not permit class arbitration of a federal law
claim.”
As framed by respondent Italian Colors Restaurant:
“This Court has repeatedly recognized that federal
statutory claims may be appropriately resolved through
arbitration “so long as the prospective litigant effectively
may vindicate [its] statutory cause of action in the arbitral
forum.” Green Tree Fin. Corp.-Ala. v. Randolph, 531
U.S. 79, 90 (2000). The question presented—on which
there is no disagreement in the circuits—is whether an
arbitration clause should be enforced when there is no
dispute that a litigant has shown that it would be unable
effectively to vindicate its federal statutory rights in the
arbitral forum.”
For a concise statement of what is at stake, we recommend the blog post of David Horton, Acting Professor of Law at U.C. Davis.
We note that Deepak Gupta, who represented Concepcion, now represents Italian Colors Restaurant.
Arbitration/Disclosures: Disclosure Requirements In Administrative Hearing Differ From Disclosure Requirements Of Arbitrator
Finding No Due Process Violation In Administrative Hearing Process, The Court Of Appeal Underscores Differences Between An Arbitrator And A Hearing Officer
Plaintiff, Dr. Safari, sought a determination that the administrative peer reviewing hearing process involving Kaiser, resulting in findings that he should no longer treat patients, violated his due process rights and was not supported by substantial evidence. In affirming a judgment denying Dr. Safari’s petition for a writ of administrative mandate directed to Kaiser,the Court of Appeal distinguished between the role of an arbitrator and a hearing officer and how that distinction bears upon disclosure requirements. Safari v. Kaiser Foundation Health Plan, Inc., Case No. A134619 (1st Dist. Div. 2 Nov. 15, 2012) (Lambden, J.) (unpublished).
Dr. Safari argued Kaiser unilaterally appointed the hearing officer over his objection, and that this procedure violated his due process rights. Dr. Safari contended that the hearing officer “was actually biased against him because he had provided legal representation for Kaiser in the past and had other relationships with Kaiser.” Bus. & Prof. Code § 809.2, pertaining to a licentiate who “timely requests a hearing concerning a final proposed action for which a report is required to be filed”, requires a hearing officer be unbiased, and also derive no direct financial benefit from the outcome.
Dr. Safari argued there was a violation of due process because, “there are no disclosure requirements in an administrative hearing and thus he could not disqualify [the hearing officer] based on connection to Kaiser revealed during voir dire [of the hearing officer].” One can inquire into bias at the administrative hearing, but the statute does not include a disclosure standard/bias disqualification process. Dr. Safari pointed out that arbitration requires disclosure requirements. Moreover, an arbitrator’s failure to disclose the nature of his legal practice has been held to violate the California Arbitration Act. Benjamin, Weill & Mazer v. Kors, 195 Cal.App.4th 40 (2011) (Kors).
But here, the Court of Appeal explained: “Kors has minimal applicability to the present case.” Why? “[T]he requirements underlying arbitrations and administrative hearings are very different.”
First, there is a statutory difference: disclosure requirements for an arbitrator are governed by the California Arbitration Act. See Cal. Civ. Proc. Code § 1281.9. Second, the hearing officer’s rulings are subject to appellate review and reversal if actual bias of the hearing officer is demonstrated. Third, the hearing officer, unlike an arbitrator, is not a trier of fact. Bus. & Prof. Code section 809.2(b) (hearing officer presiding over panel “shall not act as a prosecuting officer or advocate, and shall not be entitled to vote”).
In addition to recognizing the legal distinctions between an arbitrator and a hearing officer, the Court of Appeal distinguished the facts from cases in which “[h]earing officers have had a significant entwinement with the hospital . . . “ Here, the facts did not evince a “long-standing and continuous” relationship between Kaiser and the hearing officer.
Judgment affirmed.
The square tower has the remains of a sign, Kaiser Foundation Hospital. Richmond Field Hospital, 1330 Cutting Boulevard, Richmond, Contra Costa County, CA. Library of Congress.
Arbitration/Employment/Waiver/CCP 1286.2: Second District, Division 3 Reverses Judgment Confirming Arbitration Award Because Clear Legal Error Abridged Employee’s Statutory Rights
Unwaivable Rights Under California Family Rights Act Were Compromised, And The Parties Had Agreed That The Arbitrator Was To Resolve The Dispute “Based Solely Upon The Law”
Plaintiff Richey sued his employer for, among other things, violating the Moore-Brown-Roberti Family Rights Act (CFRA). The employer had terminated Richey, believing he had misused medical leave by working part time in a restaurant he owned. Richey’s claims were submitted to arbitration under an arbitration agreement providing, “[r]esolution of the dispute shall be based solely upon the law governing the claims and defenses set forth in the pleadings.” The arbitrator denied Richey’s CFRA claim based on the employer’s “honest belief or honest suspicion defense” that Richey misused his medical leave. After the trial court denied Richey’s motion to vacate, and the trial court confirmed the arbitrator’s award, Richey appealed. Richey v. Autonation, Inc., et al., Case No. B234711 (2nd Dist. Div. 7 Nov. 13, 2012) (Perluss, P.J.) (published).
Ordinarily an arbitrator’s award cannot be vacated under CCP 1286.2 just because the arbitrator has made a legal or factual mistake. However, the Court of Appeal did not buy the “honest belief” defense under California law, believing further that the arbitrator’s “clear legal error” resulted in a waiver of statutory rights under CFRA. Furthermore, the arbitrator’s application of the “honest belief” defense resulted in a misallocation of the burden of proof, because the employer bears the burden of proving the employee was not eligible for reinstatement.
While the Court of Appeal cited to the language of the Supreme Court “’that an arbitration agreement cannot be made to serve as a vehicle for the waiver of statutory rights created by the FEHA [Fair Employment and Housing Act]’ . . . because the enforcement of such rights was for the public benefit and was not waivable”, Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665, 667 (2010), the Court in hedged its ruling here. In Richey, the Court of Appeal said that “[w]e . . . need not decide whether it is proper to vacate an arbitration award based on any legal error in connection with mandatory arbitration of an employee’s unwaivable statutory rights.” (italics in the original). Ducking determination of that issue, the Court instead relied upon the language that the parties agreed the arbitrator would resolve any claim “solely upon the law”, adding that where “the purported legal error goes to both express, unwaivable statutory rights (the guarantee of reinstatement) and the proper allocation of the burden of proof, judicial review is essential to ensure the arbitrator has complied with the requirements of CFRA.” Thus, our takeaway is that in the employment context, where there are (i) unwaivable statutory rights involved; (ii) serious errors of law; and (iii) an agreement to rule “solely upon the law”, the Court will provide judicial review to ensure compliance with CFRA.
This leaves unresolved whether there are so-called “unwaivable statutory rights” of employees that may nevertheless be waived by an arbitration agreement, and what errors of law concerning unwaivable statutory rights will result in setting aside an arbitration award.
Note: The California Supreme Court has relied on statutory rights to invalidate a class action waiver in the context of employee rights. Gentry v. Superior Court, 42 Cal.4th 443 (2007). But the continuing viability of Gentry is an issue. See our October 16, 2012 post relating to Gentry and Iskanian v. CLS Transp. Los Angeles, 208 Cal.App.4th 949 (2012) (case concluding that Concepcion invalidated Gentry).
The judgment confirming the arbitration award was reversed and the matter remanded.