Annual Update of Alternative Dispute Resolution Cases and Legislation
| Publication year | 2020 |
| Author | By Paul J. Dubow |
By Paul J. Dubow
Paul Dubow was initially trained as a mediator in 1994 and became a full time neutral in December 2000, following his retirement after twenty-six years as director of litigation at Dean Witter Reynolds. He has arbitrated or mediated over 550 cases. He can be reached at pdubow2398@ aol.com.
The matters discussed below include cases issued in 2019 by California courts and federal courts that have jurisdiction over California, as well as 2019 state legislation that may be of interest to attorneys drafting contracts containing arbitration or mediation clauses.
The Legislature passed, and the Governor signed, Assembly Bill No. 51 (A.B. 51).1 Section 3 of A.B. 51 adds section 432.6 to the Labor Code. Subsection 432.6(a) provides that:
[a] person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act2 . . . [or the Labor Code], including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or any other government entity of any alleged violation.
Subsection 432.6(b) provides that "[a]n employer shall not threaten, retaliate or discriminate against, or terminate any applicant for employment or any employee" who refuses to consent to such a waiver.
Subsection 432.6(f) states that the statute is not intended to "invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act" ("FAA").3 Further, the statute does not apply to any person registered with a self-regulatory organization, as defined by the Securities and Exchange Act.4
The statute applies to contracts of employment "entered into, modified, or extended" on or after January 1, 2020.
Comment. In 2014, the Legislature passed Assembly Bill No. 2617, 2013-2014 Reg. Sess., which amended the Ralph Civil Rights Act5 and the Tom Bane Civil Rights Act.6 Assembly Bill No. 2617, like A.B.51, prohibited employers from requiring their employees to enter into arbitration agreements. In Saheli v. White Memorial Medical Center,7 the California Court of Appeal ruled that A.B. 2617 treated arbitration contracts differently from other contracts and thus was preempted by section 2 of the FAA, which provides that an arbitration contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (emphasis supplied). In 2018, the Legislature passed Assembly Bill No. 3080, 2017-2018 Reg. Sess., which was virtually identical to A.B. 51, except for the savings clause exempting contracts that were "enforceable" under the FAA. Governor Brown vetoed it because he believed that the bill was preempted by the FAA.
It is quite possible that A.B. 51 is preempted notwithstanding the savings clause. In fact, the Eastern District of California found it to be preempted in a lawsuit filed by the United States Chamber of Commerce and enjoined its enforcement in February 2020.8 Given that there is a good possibility that the court's decision will be appealed and the fact that a violation of the Labor Code is a misdemeanor,9 it may be prudent for employers either to comply with A.B. 51 until the issue is resolved or to ensure that the agreement is covered by the FAA.
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However, some agreements cannot be governed by the FAA. Section 1 of the FAA exempts from coverage by the FAA "contracts of seamen, railroad workers, or any other class of workers engaged in foreign or interstate commerce." The term "'any other class of workers engaged in foreign or interstate commerce'" has been defined to mean any kind of transportation worker,10 and also includes independent contractors.11 A transportation worker's employment agreement does not become subject to the FAA simply because the agreement declares that it is subject to the FAA. By stating that it is subject to and governed by the FAA, the agreement necessarily incorporates section 1 of the FAA, which includes the exemption for transportation workers.12
The fact that the subject of an arbitration agreement involves interstate commerce does not necessarily mean that the contract is governed by the FAA. This is so because draftspersons often state broadly that the contract is subject to California law. Without more, that would mean that the California Arbitration Act, not the FAA, covers the contract.13 Thus, if a draftsperson desires that the contract be subject to California law but also desires that the contract be placed under the umbrella of the FAA, then the contract should state that arbitration procedures shall be based on the FAA and that substantive issues will be governed by California law.
On the other hand, a contract involving parties who appear at first blush to act solely in intrastate commerce could be subject to the FAA where some of the transactions covered by the contract might include purchases from out of state vendors.14
Plaintiff filed a claim for unpaid wages and defendant moved to compel arbitration. The arbitration agreement provided that California law would apply. The trial court denied the motion on the ground that Labor Code section 229, which stated that arbitration agreements should be disregarded when adjudicating wage claims, superseded the arbitration agreement.
The court of appeal reversed. The agreement provided that the parties would arbitrate "any and all disputes" arising from plaintiff's employment, "including any claims brought by the Employee related to wages" under the Labor Code. Thus, in the court's view, the parties intended to arbitrate all employment disputes. The parties could not have intended to apply Labor Code section 229 to this contract, because that section prohibits arbitrating wage claims and requires courts to disregard private agreements to arbitrate. Applying that statute would contradict the parties' intent to arbitrate "any and all disputes," including claims "related to wages." The court stated that interpreting the choice-of-law provision to negate the purpose of the two-page agreement would be incorrect, and that "[r]eaders must assume legal authors mean to draft texts that cohere. To assume otherwise departs from common sense and makes mischief." The court further stated that it reads documents to effectuate and harmonize all contract provisions. The court held that plaintiff's interpretation of the choice-of-law provision was untenable because it unnecessarily set one clause in conflict with the rest of the agreement. The court concluded by stating that "'[t]he choice-of-law provision becomes consistent with the parties' intent to arbitrate all disputes' when one reads 'the laws of the State of California' to include substantive principles California courts would apply, but to exclude special rules limiting the authority of arbitrators" (emphasis in the original). Comment. This contract was in interstate commerce but did not state that the FAA would apply...
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