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Court Rejects Employer’s One-Sided Arbitration Agreement in Wage/Hour Case

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Sometimes, employees that experience the same violation or issue with an employer band together and file a class action against an employer. In order for a “class” to be certified, it must meet the requirements of Rule 23 of the Federal Rules of Civil Procedure. However, employers that are prone to such actions often require employees to sign a document that requires litigation in an arbitration proceeding rather than in court and requires an employee to litigate solo in a one-on-one fight with the employer rather than in a class or collective action where a group of employees battle the employer in a group effort.

In a recent opinion, the Court of Appeal for California rejected such a class action waiver in an employment agreement based on the idea that the waiver was unconscionable, or in other words, unfair when the employer and employee have such a large discrepancy in bargaining power to the point where the employee feels obligated to sign on the dotted line “or else”. In Compton v. American Management Services, LLC, Leasa Compton filed a class action lawsuit alleging several violations of California wage and hour laws by her employer, American Management Services.

In February 2006, Compton applied to be a property manager for American Management Services, LLC (“AMS”). As a pre-condition to employment, Compton had to sign an agreement that required her to arbitrate any issues or claims that might arise out of her employment. She was hired a month later and worked with AMS until August 2009.

Compton filed a class action against AMS in October 2010 in California state court citing various violations of the California Labor Code, such as failure to pay minimum and overtime wages, failure to reimburse for expenses, and failure to provide rest and meal breaks. AMS removed the case to federal district court without raising the issue of the agreement to arbitrate; the case ultimately was remanded back to state court in February 2011.

On April 27, 2011, the Supreme Court of the United States decided AT&T Mobility, LLC v. Concepcion; which overruled California Supreme Court’s decision in Discover Bank v. Superior Court. In Discover Bank, the California Supreme Court held that provisions in certain consumer contracts of adhesion (like Compton’s employment agreement) that barred arbitration or litigation of class-wide claims were unconscionable, and thus, unenforceable. The Supreme Court in Concepcion contradicted this holding and held that some consumer contracts with arbitration provisions were indeed subject to arbitration and enforceable even though there was a class-wide ban in the provisions.

Days after theConcepcion decision, AMS sent Compton the employment agreement she had signed and claimed that the new decision changed the law in California and that Compton should be compelled to arbitrate her claim. Compton refused to arbitrate her individual claim; AMS then filed a petition to compel arbitration in July of 2011. AMS again argued that Concepcion changed the law and could not require Compton to arbitrate until after that decision was rendered. Compton countered and argued that AMS waived its right to arbitrate by waiting too long to raise the issue with the court. She also argued that the arbitration provision in her employment agreement was unconscionable. The trial court found in favor of the employer, and compelled Compton to arbitrate her claim. Compton timely appealed to the Court of Appeal of California.

The California Court of Appeal agreed with Compton and held that the agreement she signed was in fact, unconscionable. The Court focused particularly on the one-sided nature of the agreement: AMS was still able to litigate disputes it so chose but the agreement required all employees (such as Compton) to arbitrate any potential claims they had. Furthermore, the statute of limitations greatly differed between the two parties – employees, including Compton, had to arbitrate their claim within one year of the incident whereas AMS retained a four year statute of limitation for some its claims.

The court acknowledged that the Concepcion decision did supersede Discover Bank, but did however state that Concepcion did not preempt California’s state unconscionability rule, which came from Armendariz v. Superior Court. The court in Armendariz held that the concept of unconscionability prevents stronger parties (like employers) from imposing contracts of adhesion against weaker parties (like Compton). The Court inCompton then held that Concepcion does not overrule Armendariz unlike Discover Bank. Ultimately, the court reversed the trial court’s order granting AMS’s petition to compel arbitration and directed the trial court to enter a new order that would deny the petition.

The lesson to be learned from Compton is that employers may not be able to force employees to arbitrate their claims especially if the arbitration provision is part of such a one-sided, employer-friendly agreement. The decision should serve as a guide to employers and employees alike, that some courts will not require employees to arbitrate their claims if the employment agreement is found to be unconscionable. Also, it reinforces the idea that employers need to carefully draft their employment agreements to avoid such disputes and employees should read the agreement carefully before signing on the dotted line.

If you believe your employer has deprived you of fair wages or otherwise violated your employment rights in the workplace, you should contact a St. Louis employment lawyer.

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