A Poorly Drafted Employee Arbitration Agreement Today Can Have Drastic Consequences Tomorrow

A recent California appellate decision highlights the present flux in the state of the law regarding employee arbitration agreements and the painful consequences of a poorly drafted employee arbitration agreement.

In 2013 the California Supreme Court ruled (in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1124) that employees may be forced by arbitration agreements to waive their right to file wage and hour claims with the Labor Commission.

In a recent decision, published on August 6, 2014, a California Court of Appeal interpreted an employee arbitration agreement that was drafted in 2001 – i.e., before Sonic-Calabasas when employees could not be forced to arbitrate any Labor Commission claims. The arbitration agreement signed by the employee in this case applied to “all disputes arising from employment” except for any “matters governed by the California Labor Commissioner” and “any matter within the jurisdiction of the California Labor Commissioner.”

In denying the employer’s petition to compel arbitration of an employee’s wage and hour class action, the trial court, and Court of Appeal, interpreted that arbitration agreement as excluding any claim the employee could have filed with the Labor Commission, regardless of whether she actually did file such as claim.

Due to the clumsy language of this arbitration clause, the employer now faces an expensive wage and hour class action rather than arbitrating the minor claim of a single employee.

In a scathing description of this poorly-drafted arbitration agreement, the Court of Appeal noted:

  • Employer asserts that when the agreement was written it believed employees could not waive their right to administrative [Labor Commission] Berman hearings as a condition of employment. It recognizes this is no longer the law but asserts this was the reason “within the jurisdiction” was included in the agreement. If this was Employer”s intention [however] the arbitration agreement was poorly drafted because the language used plainly exempted all statutory wage claims regardless of the forum of litigation. …. there were many ways Employer could have clarified only statutory wage claims actually brought before the Labor Commissioner would be exempted [from arbitration].
  • If Employer intended to exclude [from arbitration] only statutory wage claims brought in one forum over another it could have narrowly drafted and defined the phrases “matters governed” and “matter[s] within the jurisdiction” to mean “claims actually filed with the commissioner” or “claims being litigated in a Berman hearing.” Alternatively, Employer could have clarified employee was agreeing to arbitrate “statutory wage claims not brought before the Labor Commissioner.”

The lesson to be learned is, with the law regarding employee arbitration agreements presently in a state of flux, employers would be well advised to have qualified counsel review their employee arbitration agreements to ensure they apply to the widest permissible range of employee claims.

The recent case is Rebolledo v. Tilly’s, Inc. (Cal. Ct. App., July 8, 2014, G048625) 2014 WL 3855179 – certified for publication on August 6, 2014.

If you have any questions or would like more information please contact Jim Parton at jparton@partonsell.com or Frank Conway at fconway@partonsell.com

A recent California appellate decision highlights the present flux in the state of the law regarding employee arbitration agreements and the painful consequences of a poorly drafted employee arbitration agreement. In 2013 the California Supreme Court ruled (in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1124) that employees may be forced by arbitration […]