Arbitration, Preemption, and Labor Code § 229

• Citation: Vol. 28 No. 4
• Publication year: 2014
• Author: By Joel M. Grossman

Arbitration, Preemption, and Labor Code § 229

By Joel M. Grossman

Joel M. Grossman is a mediator and arbitrator with JAMS in Los Angeles. He has been selected four times as one of the Top Neutrals in California by the Daily Journal. For more information please contact www.grossmanmediation.com.

While the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion¹ is surely familiar to most California labor and employment lawyers, a less familiar preemption case dating back to 1987 also holds that the Federal Arbitration Act² (FAA) preempts California law, specifically Cal. Lab. Code § 229. That section reads, in full:

Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate. This section shall not apply to claims involving any dispute concerning the interpretation or application of any collective bargaining agreement containing such an arbitration agreement.

In other words, other than in the context of a collective bargaining agreement, a claim by an employee for breach of this "article," which effectively means sections 200 through 244 of the California Labor Code,³ may be filed and litigated in court irrespective of the existence of an agreement to arbitrate all disputes.

If you are wondering why you never heard of Cal. Lab. Code § 229, and why courts routinely compel employees to arbitrate disputes for wages under Cal. Lab. Code §§ 200-44, then you probably have also not heard of the United States Supreme Court's ruling in Perry v. Thomas.⁴ In that case, the Court clearly ruled that the provisions of Cal. Lab. Code § 229 are preempted by the FAA, and therefore not enforceable. But that does not tell the whole story. In order for the FAA to apply, and for the state Labor Code to be preempted, there must be a showing that the matter involves interstate commerce.

This is the crux of the recent case of Lane v. Francis Captial Management LLC.⁵ Plaintiff Lane sued his former employer, Francis Capital Management (FCM), for a variety of causes of action, including wrongful termination, breach of oral contract, failure to pay wages, failure to provide meal and rest breaks, and other typical wage and hour claims. FCM responded to the complaint by filing a motion to compel arbitration. Lane and FCM had entered into an arbitration agreement which provided that:

. . . [A]ll claims, disputes and controversies arising out of, relating to or in any way associated with [Lane's] employment by [FCM] or the termination of that employment shall be submitted to final and binding arbitration. . . . Examples of such disputes or claims which must be resolved through arbitration, rather than a court proceeding, include, but are not limited to, wage hour and benefit claims. . .⁶

The arbitration agreement said that all disputes would be litigated under the American Arbitration Association (AAA) rules, but the rules themselves were not set forth in the agreement.

Lane opposed the motion to compel arbitration on several grounds. First, he asserted that his wage and hour claims based on the Labor Code were protected from arbitration by Cal. Lab. Code § 229. Lane relied not just on the language of the statute, but also on the holding of Hoover v. American Income Life Insurance Company,⁷ which expressly held that § 229 bars arbitration of claims for wages. In addition, Lane maintained that FCM could not compel arbitration of his other claims, which were not covered by § 229, because the arbitration agreement was both procedurally and substantively unconscionable. Lane pointed out that the contract was adhesive, that there was no provision guaranteeing discovery, and that the agreement had not expressly set forth the AAA rules.

In reply, FCM argued to the trial court that Lane's reliance on the Hoover case was wrong, because the arbitration clause at issue in Hoover did not expressly reference claims for wages, while the agreement between Lane and FCM expressly included wage and hour claims. FCM also denied that the arbitration agreement was unconscionable.

The trial court denied the...