Another Nail in the Coffin for Employment Arbitration Agreements…
Another Nail in the Coffin for Employment Arbitration Agreements:
Gentry is Good Law in Cases Where the FAA Does Not Apply to the Dispute
By Jennifer Suberlak and Jenna Leyton-Jones
In Garrido v. Air Liquide Industrial U.S. L.P., a California Court of Appeal determined that the rule set forth in Gentry v. Superior Court (2007) 42 Cal.4th 443 is still good law – at least in some situations. In Gentry, concerned that class waivers contained within arbitration agreements would “interfere with employees’ ability to vindicate unwaivable rights,” the California Supreme Court articulated four factors a court should consider when deciding whether to uphold a class waiver: (1) the modest size of the potential individual recovery; (2) the potential for retaliation against class members; (3) the fact that absent class members might be ill informed about their rights; and (4) other real world obstacles to the vindication of class members’ rights through individual arbitration. Because neither the U.S. Supreme Court nor the California Supreme Court has held otherwise, the Second Appellate District concluded that the Gentry rule remains valid so long as the Federal Arbitration Act (“FAA”) does govern the dispute at issue.
The Trial Court Denied Air Liquide’s Motion to Compel Arbitration
In Garrido, the plaintiff (“Garrido”) filed a putative class action lawsuit against his former employer, Air Liquide, alleging violations of the Labor Code and the unfair competition statute. Air Liquide moved to compel individual arbitration pursuant to an arbitration agreement governing Garrido’s employment. The arbitration agreement precluded Garrido from pursuing class or representative claims and expressly provided that the FAA would govern the agreement and any arbitration proceedings. The trial court denied the motion to compel arbitration pursuant to Gentry, determining that the arbitration agreement posed an obstacle to the employee’s ability to vindicate statutory rights under the Labor Code.
Garrido’s Dispute Was Not Subject to the FAA
The Court of Appeal agreed, first concluding that the FAA did not apply to Garrido’s dispute because the statute expressly exempts transportation workers from its scope. Since Garrido was a truck driver who transported Air Liquide’s products across state lines, he was a transportation worker within the meaning of the FAA. Thus, despite the arbitration agreement’s express invocation of the FAA, the plain terms of the statute superseded the terms of the agreement.
Gentry Remains Viable where the FAA Does Not Apply
The appellate court then concluded that the arbitration agreement was unenforceable based on the Gentry rule. According to the court, the Gentry rule was not completely undone by recent decisions issued by the U.S. and California Supreme Courts. In AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court held that a state rule that requires the availability of classwide arbitration interferes with the fundamental attributes of arbitration, and is thus preempted by the FAA. In Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court held that Gentry’s rule did not survive Concepcion, since its mandate in favor of class proceedings interferes with fundamental rights of arbitration in violation of the FAA.
Both Conception and Iskanian explicitly addressed the enforceability of class waivers in cases where the FAA applies; neither case considered the continued viability of Gentry in cases not governed by the FAA. In the absence of such authority, the Garrido court concluded that Gentry sets forth valid grounds for refusing to enforce an arbitration agreement as long as the FAA does not apply to the dispute. Applying the Gentry rule to the facts of Garrido’s case, the court determined that class proceedings would be “a significantly more effective way of allowing employees to vindicate their statutory rights,” and therefore the arbitration agreement’s prohibition of class proceedings was unenforceable.
The Takeaway for Employers
Unsurprisingly, a California court has found another way to hinder the enforcement of employment arbitration agreements. In light of Garrido, it will likely be more difficult for employers to enforce class waivers against employees in the transportation industry, and against employees whose activities do not implicate interstate commerce. Employers can nonetheless take heart in the knowledge that, in most cases, it is not extremely difficult to establish that a plaintiff’s employment and/or arbitration agreement involves interstate or foreign commerce. Given that local businesses often do business with out-of-state vendors, the predominance of the internet as a means of communicating, advertising, and expanding business, and ever-increasing globalization, more and more employees are participants in interstate transactions and are therefore likely subject to the FAA.
Jennifer Suberlak and Jenna Leyton-Jones represent employers in all aspects of employment litigation. The material contained in this article has been prepared for informational purposes only. It should not be construed as legal advice. Pettit Kohn expressly disclaims all liability with respect to actions taken or not taken based on the content of this article.