A new California Court of Appeal arbitration decision questions the paid forum’s ability to adequately protect litigants and challenges whether discovery in such forums is truly fair under the Federal Arbitration Act (“FAA”), California Arbitration Act (“CAA”) or the JAMS discovery rules.
Miguel Saldana resigned from his position at Veeco and went to work for a competitor, Aixtron. Veeco started paid arbitration proceedings against Saldana under an arbitration clause in his employee confidentiality agreement, alleging (1) breach of contract, (2) breach of the duty of loyalty, and conversion, including alleged data theft. Aixtron was not a party to the arbitration. The arbitrator granted Veeco’s application for a pre-hearing discovery subpoena for Aixtron’s business records, including a demand that Aixtron produce any and all computers that Saldana had used for forensic examination by “an agreed-upon third-party neutral expert.” Basically, the new employer was now forced to defend its hiring decision of Mr. Saldana while concurrently defending a lawsuit from its competitor as well as potential data security issues with entire computers being ordered from a subpoena issued from an arbitrator. Over Aixtron’s objections, the arbitrator granted Veeco’s motion to compel. Aixtron sought judicial review; Veeco filed a separate petition to enforce the arbitrator’s discovery order, which the court granted.
On appeal, the Court of appeal rejected Veeco’s contention that the superior court’s orders are not appealable and found it unnecessary to resolve the parties’ dispute over whether this case is governed by the FAA or the CAA since the Court of Appeal concluded that under either statutory scheme, the arbitrator did not have the authority to issue a discovery subpoena to Aixtron in the circumstances of this case, essentially punting on this issue and causing more litigation over subpoenas, discovery and the scope of the arbitrator’s powers. Wait! Wasn’t arbitration supposed to save time and money?
The Court of Appeal elected to follow federal appellate cases that hold there is “no right to pre-hearing discovery under the FAA.” As part of the Court’s analysis, we construe Code of Civil Procedure section 1282.61 and address, as an issue of first impression, whether it granted the arbitrator broad powers to issue pre-hearing discovery subpoenas. The Court concluded it did not and held that the arbitrator’s discovery subpoena to Aixtron was not authorized under the CAA since the parties to the arbitration did not provide for full discovery rights in their arbitration agreement. See Code of Civil Procedure § 1283.1.
It appears Mr. Saldana’s dates of employment where from 2014 to 2016, long before AB 51 was passed, which is now currently on appeal. AB 51 was passed to prohibit employers from requiring employees or applicants to waive any right, forum, or procedure for a violation of FEHA or the Labor Code as a condition of employment. It also prohibits employers from threatening, retaliating or discriminating against, or terminating employees or applicants because they refused to waive any such right, forum, or procedure. In addition to outlawing mandatory arbitration agreements, AB 51 also prohibits arbitration agreements that require employees to opt-out of a waiver “or take any affirmative action in order to preserve their rights.” Notably. the express language of AB51 provides that the law does not invalidate any agreement governed by the Federal Arbitration Act and therefore it will not have any impact on the majority of arbitration agreements.
To the extent an arbitration agreement or class action or jury trial waiver is not governed by the FAA, effective January 1, 2020, an employer may only enter into such an agreement an arbitration agreement or class action or jury trial waiver with a California employee if that employee voluntarily and affirmatively chooses to enter into such an agreement or waiver.
Temporary restraining order
Initially, AB51 was scheduled to go into effect on January 1, 2020. However, on December 9th, the US Chamber of Commerce challenged the bill, claiming that AB51 was preempted by the FAA. The court declared that if the statute were in effect, and preempted by the FAA, it would disrupt the creation of employment contracts, especially given the potential of employers to face criminal liability.
Therefore, the court issued a temporary restraining order (TRO), blocking the enforcement of AB51. The hearing on the motion for a preliminary injunction was set for January 10, 2020.
Preliminary Injunction Issued to AB51
The case in question is Chamber of Commerce of the United States et al. v. Becerra et al. The court in this case ultimately granted the request for the preliminary injunction based on two main grounds.
The first issue was that AB51 allegedly treats arbitration agreements differently from other contracts. Under the FAA, businesses are free to execute contracts as they choose, and the conditions are typically admissible and enforceable. If AB51 was enforced, then employers requiring arbitration would then be subject to civil actions and criminal penalties
The second main reason the preliminary injunction was granted is that the bill conflicts with the general purpose and objectives of the FAA. The FAA was enacted to promote the use and validity of arbitration proceedings. However, AB51 criminalizes certain arbitration agreements. For now, such arbitration agreements are permissible and were not the same type being appealed in the Aixtron case.
Please stay healthy as we continue to monitor the rapidly developing COVID-19 situation and arbitration agreements that may dominate the workplace in a return to work scenario. If you have any questions about whether you have been paid properly or paid all minimum wages or asked to work off the clock or believe you have a claim against your employer for any violation of the California Labor Code, please feel free to call us at 949.458.9675 or email Rich Quintilone II Esq at firstname.lastname@example.org if you have any questions. Alejandro Quinones Esq. email@example.com – yo hablo español.