The Continuing Saga In the Never Ending Tale of Arbitration Agreements

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05/30/2017

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The Continuing Saga In the Never Ending Tale of Arbitration Agreements: Who Decides Whether Class Claims May Proceed in Arbitration?

By: Rebecca A. Hause-Schultz

Arbitration agreements are a useful tool for employers to protect themselves from class action litigation. However, arbitration agreements alone do not necessarily prevent a case from proceeding in arbitration as a class action. On July 28, 2016 in Sandquist v. Lebo Automotive Inc., et al., the California Supreme Court addressed the question of who decides whether an arbitration agreement prohibits class wide arbitration—a court or the arbitrator.  


In Sandquist, Plaintiff was an employee at Defendants’ auto dealership. On Plaintiff’s first day of employment, his manager gave him numerous papers to sign, including an arbitration agreement. Plaintiff, who is African-American, filed individual and class claims against Defendants for pay discrimination based on race, being subjected to a hostile work environment, and passed over for promotions because of his race. Defendants moved to compel individual arbitration based on the arbitration agreement, which included a class action waiver, signed by Plaintiff on his first day of work. The trial court found the arbitration agreement enforceable and not unconscionable, and granted Defendants’ Petition to compel individual arbitration.


After the trial court ruled against him, Plaintiff appealed the decision, arguing that the trial court did not have authority to determine whether the arbitration agreement permitted class wide arbitration, but that the decision should be made by the arbitrator. Although employers generally prefer arbitrators decide the legal and factual issues in employment matters to reduce the cost of litigation, in this case, Defendants had already received a favorable ruling in the trial court.  Since the trial court decided that Plaintiff could not proceed with his class claims, on appeal Defendants argued the trial court had authority to decide whether the arbitration agreement permitted class arbitration. 


The California Supreme Court ultimately decided “it depends”—courts must decide on a case-by-case basis whether the language of the arbitration agreement at issue calls for either individual or class wide arbitration. In Sandquist, the arbitration agreement provisions Plaintiff signed extended to “any claim, dispute, and/or controversy,” and all claims “arising from, related to, or having any relationship or connection whatsoever with” Plaintiff’s employment. The question of whether Plaintiff could pursue his claims on a class basis directly arose from his underlying employment claims. The Court stated that Defendant could have written in the arbitration agreement what employment claims it did not want decided by the arbitrator. However, as written, the determination of whether the class claims could proceed in arbitration was a question for the arbitrator to decide, not the court.


COUNSEL TO MANAGEMENT:

It is critical for employers that arbitration agreements be drafted with attention to detail and adhere to the policy that the employer actually wants to enforce. As Sandquist demonstrates, an overbroad arbitration agreement may result in an arbitrator deciding claims which the employer did not intend. Employers who are concerned that their employee arbitration agreements are overbroad or need to be updated should contact the Saqui Law Group.


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