9th Circuit Finds Arbitration Agreement Enforceable Where Unconscionable Clauses Are Severable

Plaintiff Poublon filed suit in state court against her employer, C.H. Robinson. Robinson removed to federal court. Likely anticipating a motion to compel arbitration, Poublon filed a First Amended Complaint, which added a claim on under the Private Attorneys General Act (PAGA), which are non-arbitrable under settled law because a PAGA claim is filed on behalf of the State of California.

The Ninth Circuit reversed the district court’s finding of unconscionability. First, the fact that the arbitration rules were not attached to the agreement and were simply incorporated by reference may, at most, gave rise to a “greater degree of procedural unconscionability” under Baltazar, 62 Cal. 4th at 1246. And the 9th Circuit further held that “parties may validly incorporate by reference into their contract the terms of another document” provided certain conditions are met.

Interestingly, the Court also disputed that language requiring Plaintiff’s signature “In consideration for Your continued employment” to not indicate that signing was a condition of employment, as it was merely “boilerplate.” This is a somewhat difficult holding, as contracts are supposed to mean what they say, boilerplate or not. Yet the Ninth Circuit did not find oppression here. Moreover, the existence of representative claim waivers, a carve-out allowing the company (but not Plaintiff) to go to court to seek injunctive relief, and a venue provision setting arbitration in Minnesota were not enough to tip the balance to substantive unconscionability. Those that were one-sided could be severed, preserving the remainder.

It seems to us that were this case decided by the California Court of Appeal, it would likely have been decided in favor of the employee given the number of arguably unconscionable or one-sided provisions. The Ninth Circuit, however, generally displays a greater degree of deference to the preemptive quality of the Federal Arbitration Act. This is likely a case that will be cited to by employer defendants for some time, particularly in federal court, while plaintiffs will look to distinguish it with inconsistent state appellate authority.

One thing is certain: The arbitration morass is unlikely to leave us anytime soon.

Poublon v. C.H. Robinson Company (9th Cir. Feb. 3, 2017)
2017 S.O.S. 15-55143, http://sos.metnews.com/sos.cgi?0217//15-55143

Non-Severability Clause Dooms Arbitration Agreement

A case that was published two years after it was decided is an unusual turn of events, but that’s the situation in Montano v. Wet Seal. The holding is straightforward, and should be instructive to employers and their counsel drafting arbitration provisions: Do not under any circumstances include a non-severability clause. Here, the arbitration agreement barred arbitration of representative claims, including claims under the Labor Code Private Attorney Generals Act, contrary to the state’s public policy per Iskanian. This need not have been fatal except that the agreement also contained a non-severability clause that prevented the offending PAGA waiver from being severed: “In terms of severing the PAGA waiver provision, the paragraph in which it is contained states that if the waiver is found to be unenforceable for any reason by a court, then the entire arbitration agreement is void and unenforceable by the parties.” Under these circumstances, the Court of Appeal held that trial court correctly ruled that the agreement was unenforceable as to all of the plaintiff’s claims, not just PAGA. Bad news for Wet Seal.

The case also confirms another point — that unless there is a formal stay of proceedings, the parties can conduct discovery and the court can rule on a discovery motion at the same time it rules on the petition to compel arbitration. Wet Seal had objected to responding to discovery pending the hearing on its motion. Plaintiff moved to compel, and the court heard that motion immediately after denying the motion to compel arbitration: “When the court ruled on the discovery motion, the motion to compel arbitration was no longer pending, and the request for arbitration had been denied.” Moreover, regardless of the outcome of the motion to compel arbitration, the discovery motion was not moot in light of Montano’s intention to pursue her representative PAGA action, which could not be arbitrated. Plaintiff’s counsel in this case (Scott Cole & Associates) certainly deserve a round of applause on all counts.

Montano v. The Wet Seal Retail, Inc. (Cal. Ct. App., 2nd Dist. Jan. 30, 2017) 2017 S.O.S. 482. Click here for full opinion.

Security Guards Considered on Duty if Required to Carry Radio During Rest Break

“We next consider the second question raised by the parties: can an employer satisfy its obligation to relieve employees from duties and employer control during rest periods when the employer nonetheless requires its employees to remain on call? The answer, we conclude, is no — and an analysis of the regulatory framework, as well as the practical realities of rest periods, shows why. Neither Wage Order 4 nor section 226.7 provides a straightforward answer to whether on-call rest periods are permissible. Neither mentions on-call time at all, let alone on-call rest periods. (But see Wage Order 4, subd. 5(D) [providing that reporting-time pay requirements ―shall not apply to an employee on paid standby status who is called to perform assigned work‖].) Nonetheless, one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.”

“ABM recognizes that the employer has a break-related obligation to its employees. But it suggests that we define that obligation by distinguishing between, on the one hand, requiring a guard to work and, on the other hand, requiring a guard to remain on duty or on call. It would also have courts determine whether an on-call obligation unreasonably interferes with an employee‘s opportunity to take an uninterrupted rest period. This proposed course would result in less clarity and considerably greater administrative complexities. And it makes for an awkward fit with section 226.7‘s text, which forbids employers from requiring employees to work during any meal or rest period, and Wage Order 4, which requires employers to provide rest periods and explicitly indicates that employees must generally be relieved of all duty during meal periods (Wage Order 4, subd. 11(A)). Several options nonetheless remain available to employers who find it especially burdensome to relieve their employees of all duties during rest periods –– including the duty to remain on call. Employers may (a) provide employees with another rest period to replace one that was interrupted, or (b) pay the premium pay set forth in Wage Order 4, subdivision 12(B) and section 226.7.”

Augustus v. ABM Security Services (Cal. Sup. Ct. Dec. 22, 2016) 2016 S.O.S. 6553. Click here for full opinion.