Recent Arbitration Decisions: Wins for Employees and Employers

A Win for Employees:

In Sprunk v. Prisma LLC, 14 Cal. App. 5th 785 (2017), the court confirmed that an employer’s right to compel arbitration against its employees is not absolute. In a detailed decision from the Second Appellate District Court of Appeal, the court found that an employer had waived the right to compel arbitration. The employer in that case filed a motion to compel arbitration against the individual named plaintiff. Fearing that the trial court would order the parties to arbitrate on a class basis, the employer withdrew its motion to compel.  The parties then proceeded to litigate the case for nearly three years. The court granted the employee’s motion for class certification, and soon thereafter the employer made a new motion to compel arbitration against all of the class members who had signed arbitration agreements. The trial judge denied the employer’s motion, finding that it had waived its right to compel arbitration based upon its delay in seeking arbitration of the employee’s individual claims and that the delay was both unreasonable and prejudicial.

The appeal centered around whether the employer’s actions as to the individual named plaintiff could determine whether the employer had waived its right to compel arbitration against the unnamed plaintiffs, i.e. the class members. The employer argued the court should only consider its reasons in delaying compelling arbitration as to the unnamed plaintiffs themselves, because it could not have moved to compel arbitration against these individuals until the class was certified, and therefore its delay in doing so was reasonable.

The Court of Appeal agreed with the trial judge. The court ruled it was proper for the trial court to consider the employer’s strategic decision to withdraw its first motion to compel in determining whether the employer had acted inconsistently with its right to arbitrate against all class members. The Court of Appeal found that substantial evidence supported the trial court’s finding that the employer had delayed its motions to compel arbitration, both against the named plaintiff and against the other plaintiffs, not for any legitimate reason, but rather to obtain a strategic advantage: it hoped to give itself another opportunity to win the case by first defeating the class certification in court.

The Court of Appeal agreed that the employer’s strategy was inconsistent with a desire to arbitrate, finding that “an attempt to gain a strategic advantage through litigation in court before seeking to compel arbitration is a paradigm of conduct that is inconsistent with the right to arbitrate.” Ultimately, the Court of Appeal affirmed the trial court’s ruling that the employer had waived its right to compel arbitration against the absent class members due to unreasonable delay.

A Win for Employers:

On August 21, 2017, the First Appellate District issued a decision in OTO, LLC. v. Ken Kho, 14 Cal. App. 5th 691 (2017) granting a car dealership’s petition to compel arbitration with its former employee. In that case, the employee, Kho, filed a claim for unpaid wages with the California Labor Commissioner against his former employer, One Toyota of Oakland. The Labor Commissioner utilizes an informal process, known as a Berman hearing, to decide employees’ wage claims. It is intended to be a speedy, informal, and affordable method for employees to resolve these type of claims.

One Toyota of Oakland refused to participate in the Berman hearing and instead sought to compel arbitration. On the date of the Berman hearing, the employer’s counsel served the employee with a copy of the petition to compel arbitration, and then left. The Labor Commissioner continued the Berman hearing anyway and found the employee was entitled to $102,912 in unpaid wages and $55,634 in liquidated damages, interest, and penalties. The employer sought review of the monetary award with the trial court and petitioned to compel arbitration.

The employee opposed the petition to compel arbitration, claiming that he was not provided with sufficient time to review the arbitration agreement prior to signing it, was not provided a copy of the arbitration agreement after signing, and did not receive a copy of the arbitration agreement in his first language, which is Chinese. The trial court denied the petition to compel, finding a high level of “procedural unconscionability,” meaning that the arbitration provision was unfairly imposed on the employee under the circumstances and unfairly left the employee without an accessible and affordable alternative for resolving wage claims like, for example, a Berman hearing.

The Court of Appeal disagreed and reversed the trial court, even in light of the California Supreme Court’s decision in Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013), which stated that even though “a court may not refuse to enforce an arbitration agreement imposed on an employee as a condition of employment simply because it requires the employee to bypass a Berman hearing, such an agreement may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer.”

The court agreed that several factors worked against the agreement, including that the way it was presented to the employee was “highly coercive and appear[ed] to intend to thwart, rather than promote, voluntary and informed consent” because the employee was not given time to review the agreement, it was in small print, and it was drafted with too many legalistic terms which require legal training to decipher. However, the court noted that the agreement did not contain any terms that tended to favor only the employer. Additionally, the court pointed out that even though the agreement required the employee to waive his right to a Berman hearing, because the result of a Berman hearing is nonbinding and an appeal by either party effectively entitles the party to a new proceeding in superior court—i.e. ordinary civil litigation, the arbitration agreement did not deprive the employee of a reasonable alternative for resolving wage claims. Looking at the agreement as a whole, the court found that it was not so unfair as to be unenforceable and therefore ordered the trial court to compel the employee’s case to arbitration.