CALIFORNIA ARBITRATION AGREEMENTS FOR EMPLOYEES LIMITED (AGAIN)

CALIFORNIA ARBITRATION AGREEMENTS FOR EMPLOYEES LIMITED (AGAIN)

The recent California Court of Appeal decision of Villalobos v. Maersk held that the employer’s referring to arbitration rules in employee handbooks or agreements is insufficient to designate arbitrability questions to the arbitrator. Many agreements state that disputes will be handled under JAMS rules or ADR rules, but this court ruling says that this is inadequate because employees would need to review a separate 26-page rulebook at JAMS or ADR to discover they were giving the arbitrator and not a judge authority to rule on whether arbitration applies to the employee’s claim(s).

Employee handbooks should more explicitly detail that the arbitrator will decide questions about the agreement’s scope and enforceability.  Otherwise, a judge will make that determination and, in that case, the employee’s claims are in two forums – court and arbitration.

The court also addressed Private Attorney General Act (“PAGA”) claims, which allow employees to pursue Labor Code penalties on behalf of the state and other employees as a representative action.  Please recall our prior update that the U.S. Supreme Court ruled in the Viking River case that employers can split PAGA claims, with individual claims determined in arbitration, while keeping representative PAGA claims in court.  This Villalobos case clarifies that Viking River only applies when the Federal Arbitration Act (“FAA”) governs.  When the FAA does not apply (such as with transportation workers), the entire PAGA representative claim brought by the employee stays in court and cannot be forced into arbitration.

This is critical because PAGA cases can expose employers to substantial penalties, and many have been relying on arbitration to at least remove individual PAGA claims from court.  Under this ruling, if the claims are not covered by the FAA, the employer could again be back to facing the full PAGA claim in court regardless of any arbitration clause in the employee handbook or policies.

Employers should consider reviewing arbitration agreements to ensure they contain explicit arbitrator delegation language and also assess whether the employer’s business falls under the FAA or California arbitration law, as this determines PAGA exposure.   Epps & Coulson, LLP can help you audit your agreements, evaluate your FAA coverage, and develop strategies to minimize PAGA risk. Please reach out if you would like us to review your employment documents or discuss how this impacts your situation.

Please contact Epps & Coulson, LLP to protect your business from costly litigation exposure:  Dawn  – dawn@eppscoulson.com.

Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.  It is likely considered advertising.  Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.  Epps & Coulson, LLP attorneys and affiliated counsel admitted to practice in California, Texas, Colorado, Oregon, New York, Connecticut, District of Columbia, Massachusetts, Michigan, New Jersey, Hawaii, European Union, England and Wales, France (Paris Bar), Sweden, and the US Patent & Trademark Office.

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