Ninth Circuit Clarifies Some Issues and Ducks Others Regarding Arbitration Agreements

The Court of Appeal for the Ninth Circuit recently issued a pair of decisions that help to clarify the law surrounding arbitration agreements: Davis v. Nordstrom (holding that no particular form of notice is required to modify existing arbitration agreements) and Johnmohammadi v. Bloomingdale’s (opportunity to opt out Gear-and-Gavel_dark-blueof arbitration agreements with class action waiver defeats argument that federal labor laws bar such waivers).

In Davis v. Nordstrom, Inc. (9th Cir.2014) 2014 DJDAR 8019 the court clarified the law with respect to whether and how an employer can modify an existing arbitration agreement so as to prohibit class actions.  The plaintiff in Davis had received an employee handbook that required arbitration but permitted class actions.  In 2011, Nordstrom revised the arbitration agreement to bar class actions.

The United States District Court for the Northern District of Calfornia, the Honorable Claudia Wilken presiding, concluded that Nordstrom had not provided adequate notice of this change to its handbook.  The district court also held that an employer that unilaterally modifies terms of employment is required to specifically notify its employees that continued employment will mean that the employees have accepted the new terms.

The Court of Appeal rejected both of these arguments.  First, the court concluded that while the notification process had not been a “model of clarity,” it had been sufficient.  Second, when unilaterally modifying contracts, employers are not required to expressly inform employees that continued employment means acceptance of the modified terms.

In reaching the second conclusion, the court relied upon Schachter v. Citigroup (2009) 47 Cal.4th 610.  In Schachter, the California Supreme Court held that an employer can unilaterally change the terms of an employment agreement.  Further, where an employee continues in employment after being told about the changed terms of employment, he or she accepts those new terms.

In sum, the court in Davis rejected the notion that an employer has to provide notice of changed terms and conditions of employment in a particular way.  Instead, absent a specific agreement to the contrary, all that is required is “reasonable and fair notice.”

The second case to come down on June 23, 2013, is Johnmohammadi v. Bloomingdale’s (9th Cir.2014) 2014 DJDAR 8022.  In Johnmohammadi, the arbitration agreement at issue barred class actions.  It also allowed employees to opt out of it by returning a particular form within 30 days of hire.  Ms. Johnmohammadi did not opt out of the arbitration agreement.  After she was terminated, she brought a class action lawsuit seeking to recover unpaid overtime wages.

In an effort to avoid arbitration, Ms. Johnmohammadi raised a series of arguments involving federal labor laws.  First, she argued that the Norris-LaGuardia Act, 29 U.S.C. section 101, et seq., barred contracts that interfere with concerted activities for the purpose of mutual aid or protection.  Second, she argued that the National Labor Relations Act (NLRA, also known as the Wagner Act), 29 U.S.C. s 151, et seq., makes it illegal for employers to restrain employees seeking to engage in concerted activities for the sake of mutual aid or protection.

The court ducked both of these arguments.  Instead, the court focused on the fact that Bloomingdale’s had given employees the chance to opt out of the arbitration agreement.  The court concluded that this fact defeated the argument that Bloomingdale’s had interfered with anyone’s right to file a class action.

The court left for another day the question of whether Ms. Johnmohammadi’s arguments under the Norris-LaGuardia Act and the NLRA would prevail in situations in which an employer required its employees to waive the right to participate in a class action as a condition of employment.  Those arguments were recently considered by the California Supreme Court in the important case of Iskanian v. CLS Transportation (2014) S204032.  Justice Kathryn Werdegar’s concurring and dissenting opinion in that opinion (explored in another post to follow shortly on this blog) sets forth an eloquent and convincing explanation of why class action waivers in arbitration agreements clearly run afoul of those two federal statutes.

The landscape surrounding arbitration agreements and class action waivers is changing rapidly.  If you have signed an arbitration agreement and have questions about whether your employer can enforce it or not, you may want to speak with an attorney who is familiar with how courts are treating such agreements.  Please feel free to contact Hunter Pyle Law at 510.444.4400 or for a free consultation.