The Fourth Appellate District, Division Three, recently held in Nguyen v. Applied Medical, that the question of whether an arbitration clause in an employment agreement contemplates class claims is a question for the arbitrator to decide, not the Superior Court.
The Class Action Complaint
On September 30, 2014, Da Loc Nguyen filed a putative class action complaint against Applied Medical Resources Corp. (“Applied”) in Orange County Superior Court. On November 3, 2014, Nguyen filed a First Amended Class Action Complaint, asserting numerous wage and hour violations by Applied on behalf of nonexempt employees employed (or formerly employed) by Applied in California for things such as failing to pay overtime, forcing unpaid off the clock work as well as meal and rest break violations under the California Labor Code. Nguyen also alleged that Applied violated Labor Code sections 2698 and 2699, the Private Attorneys General Act (“PAGA”).
In applying to Applied, Nguyen singed an arbitration agreement found in one paragraph of his four (4) paragraph application. Paragraph one generally states that the information provided is truthful and accurate. The second paragraph generally authorizes Applied to check Nguyen’s references. The third paragraph contained an arbitration clause.
The Motion to Compel Arbitration
On March 17, 2015, Applied filed a Motion to Compel Arbitration. Applied’s Motion generally argued that: (1) the Application’s arbitration clause was enforceable; and (2) the arbitration clause precludes Nguyen from arbitrating class claims.
On April 20, 2015, Nguyen filed his Opposition and objections. The Opposition argued, that the arbitration clause is unenforceable because it is both procedurally unconscionable and substantively unconscionable. The Opposition specifically argued that the arbitration clause is procedurally unconscionable because: (1) it is an adhesion contract; (2) the arbitration clause is hidden in an Employment Application; and (3) Applied failed to provide Nguyen with a copy of the applicable rules.The Opposition argued that the arbitration clause is substantively unconscionable because: (1) the arbitration clause lacks mutuality as it only requires Nguyen to arbitrate his claims against Applied; (2) unfairly requires Nguyen to bear arbitration costs; and (3) fails to provide the minimal guarantees required by Armendariz v. Foundation Health Psychcare Services Inc. (2000) 24 Cal.4th 83. The Opposition also argued that severance was inappropriate because the arbitration clause is permeated with unconscionability. Finally, the Opposition argued that the Application contemplates class claims. On April 24, 2015, Applied filed its Reply
The Trial Court’s Ruling
On June 1, 2015, the trial court issued an Order granting Applied’s Motion to Compel, holding that: (1) Nguyen’s individual claims shall be arbitrated; (2) all class and representative claims are dismissed/stricken with prejudice (except the PAGA claims); (3) the PAGA claims are stayed pending the outcome of the arbitration; and (4) Applied “shall pay all costs of the arbitration other than those that plaintiff would necessarily pay in a court proceeding.” The trial court explained its ruling as follows:
Regarding, procedural unconscionability, the trial court noted that “[t]he fact that [Nguyen] signed the application as he was required to do so to seek employment may make the contract one of adhesion . . . .” The court also noted: “The fact that the AAA rules were not attached or otherwise provided may make the application procedurally unconscionable . . . .” Nevertheless, the trial court held that the failure to attach the AAA rules “fails to be a matter of substantial oppressiveness. It would seem unlikely that a civil engineer, with six years of college, could not traverse the internet to find such rules.” In doing so the trial Court had no evidence that Mr. Nguyen even spoke good English and failed to observe why he would be working an assembly line job if he was actually an American civil engineer, not one trained in Vietnam and Australia.
Regarding, substantive unconscionability, the trial court held that “even if the application is procedurally unconscionable, it is not substantively unconscionable.” The trial court specifically noted: “The issue of the costs provision is not a substantial issue, as the court orders the costs to be paid appropriately, and the term does not permeate the application with substantive unconscionability. It is a term easily severable.” .
Regarding mutuality, the Order states: “In light of [AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)], it is highly unlikely that mutuality of obligation precludes the enforcement of an arbitration agreement.” (emphasis added). The Order then concluded that the arbitration agreement was mutual because it “requires arbitration of all disputes, not limited to those only raised by plaintiff. It is mutual.”
The Order also concluded that the arbitration agreement did not apply to class claims, stating:
There is no indication in the arbitration provision that class actions or representative claims were included in the arbitration provision. There is no ambiguity. There are only two parties to the application, plaintiff and the defendant. The words found in the application that “all disputes…. which might arise out of or relate to my employment with the Company,” are not, by their very nature, disputes relating to or arising out of other employees’ employment with the company.
Finally, the trial court stayed the PAGA claims pending the arbitration’s outcome and did not address any of the objections. On July 2, 2015, Nguyen, through his counsel, Quintilone & Associates timely filed a Notice of Appeal.
Appellate Court Ruling
On October 4, 2016, the Appellate Court reversed the trial Court holding that it was improper to dismiss the class action claims and that the arbitrator, and not the court, decide whether an arbitration agreement contemplates class claims. The Court of Appeal noted that under Sandquist v. Lebo Automotive, (2016) 1 Cal. 5th 233, California Supreme Court held that the determination of “who decides whether the [arbitration] agreement permits or prohibits class wide arbitration, a court or the arbitrator” is in the first instance a matter of agreement, with the parties’ agreement subject to interpretation under state contract law. Id. at p. 241. Interpreting an arbitration agreement containing language similar to that used in this case, Sandquist concluded that ―[u]nder state law, these parties’ arbitration agreement allocates the decision to the arbitrator. Ibid. According to the court, [t]he remedy when an issue has erroneously been addressed by a court rather than an arbitrator is to remand with instructions that the correct decision maker consider the issue anew. [T]he parties have not yet obtained the arbitration decision that their contracts foresee; remanding enforces the parties’ arbitration agreements according to their terms. Id. at p. 261.
As a result, the Court of Appeal, Fourth Appellate District, Division Three issued a peremptory writ of mandate commanding the trial court to vacate that portion of its order dismissing the class claims to allow the arbitrator to decide whether the arbitration clause permits arbitration on a class-wide basis. The decision was published and can be found here http://www.courts.ca.gov/opinions/documents/G052207.DOC.
What does this mean for employees and employers in the state of California? It means that if there is an issue of whether class claims and the parties are bound to arbitration through the agreement, the decision may be left to the arbitrator, not the court, to decide whether the agreement contemplates class claims. The public policy favoring arbitration as an alternative dispute resolution tool was also reinforced, and the if the arbitration agreement is ambiguous on whether or not class claims are included, then the ambiguity will be interpreted in favor of the employee, who does not draft the employment agreement.
This post was drafted with the assistance from Law Clerk George A. Aloupas of Quintilone & Associates.
If you have any questions about the Sandquist case, the Nguyen v. Applied Medical case in which Quintilone & Associates was counsel for, or have a claim against your employer for any violation of the California Labor Code, please feel free to contact: