California Decision said to threaten "millions of arbitration agreements : National Law Jornal

California law provides an expeditious, virtually free administrative remedy for a worker seeking wages owed but unpaid.  But an employment agreement presented to Ken Kho by his employer OTO, LLC faced him with a mandatory arbitration clause that deprived him of that remedy.  The California Supreme Court, 6-1, found it "substantively unconscionable" in OTO, LLC v, Kho, 447 P.3d 680 (2019).  OTO - represented by the Paul Weiss firm - has filed a petition for certification.  It presents employers with an opportunity to again turn back the California Supreme Court which has proven determined to preserve state contractual remedies.  Employers hope to persuade the United States Supreme Court to declare that the Federal Arbitration Act preempts such a ruling.  A similar argument - that the Kentucky Supreme Court had targeted arbitration for unequal treatment - carried the day in Kindred Nursing v. Clerk, 137 S. Ct. 1421 (2017).

The central point that the company asserts is that California has developed a doctrine that is particularly hostile to arbitration of labor disputes.  The issue is of great importance because California' legislature has in Assembly Bill 5 acted to deny gig  economy employers like Uber the ability to classify their solo drivers as independent contractors.  That classification deprives employees of  the benefit of the employer's share of social security, workers compensation, overtime pay, the ACA insurance obligations of large employers, and a raft of other protections of workers rights such as collective bargaining.

The California Supreme Court attacks the OTO agreement saying that Kho, a native Chinese speaker was confronted with a document entitled “Comprehensive Agreement—Employment At-Will and Arbitration.”  He signed it. The Court explains

As the Court of Appeal observed, “Notwithstanding its designation as a ‘comprehensive’ employment contract, the one and one-quarter page contract is merely an arbitration clause grafted onto an acknowledgment of at-will employment.”The contract's arbitration clause is contained in a dense, single-spaced paragraph, written in a very small typeface that fills almost an entire page. Subject to limited exceptions, nearly any employment-related claim made by either party must be submitted to binding arbitration. Class or collective proceedings are generally prohibited. Arbitrations must be conducted before a retired superior court judge, pursuant to the California Arbitration Act (Code Civ. Proc., § 1280 et seq.), with full discovery permitted (see Code Civ. Proc., § 1283.05). Furthermore, “[t]o the extent applicable in civil actions in California courts,” the agreement requires adherence to “all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure Section 631.8.” The allocation of arbitration costs is not addressed explicitly. Instead, the agreement refers to Code of Civil Procedure section 1284.2, which generally provides that parties to an arbitration must bear their own expenses. But the agreement also states that “controlling case law” or statutes will prevail over Code of Civil Procedure section 1284.2 if there is a conflict.

 OTO'a petition, if granted, will pose a major threat to the authority of the California Supreme Court which is a particularly strong source of worker and consumer protective legal doctrine. - gwc

California Decision said to threaten "millions of arbitration agreements : National Law Journal
by Mike Scarcella

A California Supreme Court ruling in a wage dispute threatens to undermine “millions of arbitration agreements” and more broadly highlights the state’s “recalcitrance” against allowing employers and their workers to resolve some workplace complaints out of court, lawyers for an auto dealer asserted in a new U.S. Supreme Court petition on Monday.

The petition, filed by a team from Paul, Weiss, Rifkind, Wharton & Garrison, said a series of California rulings against arbitration agreements have made the state a “serial offender” of U.S. Supreme Court decisions upholding mandates of the Federal Arbitration Act.

“The message has not gotten through,” Paul Weiss partner Kannon Shanmugam told the justices on behalf of OTO LLC, which does business as One Toyota of Oakland. Paul Weiss represents the auto dealer with the law firm Fine, Boggs & Perkins.

The Supreme Court over the last decade has issued a number of rulings strengthening the Federal Arbitration Act, and the new petition gives the justices a fresh opportunity to weigh the contours of the law. The justices last term passed up a chance to take a California arbitration case, as the high court, without comment, refused to touch a state ruling that said a former Winston & Strawn partner could sue the firm for alleged bias.

The auto dealer’s petition challenges a divided California Supreme Court opinion that invalidated an arbitration agreement in a dispute involving a former service technician. The auto dealer’s lawyers unsuccessfully tried to stop a California labor agency hearing, and the company also lost its bid to compel arbitration through the courts. The California Labor Commission awarded the former employee, Ken Kho, $150,000 in unpaid wages, liquidated damages, interest and penalties.

The California Supreme Court concluded the arbitration agreement at question was “substantively unconscionable.” Arbitration, the court said, “is premised on the parties’ mutual consent, not coercion.”

The justices in the majority said that by signing the arbitration agreement, Kho surrendered a “full panoply” of administrative procedures and assistance and got in return access “to a formal and highly structured arbitration process that closely resembled civil litigation if he could figure out how to avail himself of its benefits and avoid its pitfalls.”

“Employees who agree to arbitrate claims for unpaid wages forgo not just their right to litigate in court, but also their resort to an expedient, largely cost-free administrative procedure,” the California Supreme Court said. The ruling described Kho’s arbitration agreement as “opaque.” Sentences in the agreement “are complex, filled with statutory references and legal jargon. The second sentence alone is 12 lines long.”