California Labor Commissioner’s Lack of Evidence Leads Court to Compel Arbitration

By Christine M. Mueller

A California appellate court was unimpressed with the evidence, or lack thereof, used to challenge an arbitration provision. In Performance Team Freight Systems, Inc. v. Aleman, a group of truck drivers who entered into independent contractor agreements with Performance Team Freight Systems, Inc. (“the Company”) filed wage claims with the California Labor Commissioner (“Commissioner”). Prior to commencement of the Commissioner’s hearings, the Company filed a petition to compel arbitration, citing the broad arbitration provisions contained in the independent contractor agreements.

The first issue discussed by the court was whether the arbitration provisions were governed by the Federal Arbitration Act (“FAA”). If the matter were governed only by California law and not the FAA, California law would have precluded arbitration. But if the FAA applied, arbitration would be required. The Commissioner argued that the workers were exempt from the FAA because they were transportation workers who had “contracts of employment” with the Company, placing them within a narrow exception to the FAA. The Commissioner, however, failed to produce evidence that the agreements were contracts of employment. In fact, the only evidence relevant to this issue was presented by the Company. The court concluded that the agreements were not contracts of employment because they were characterized as independent contractor agreements. The individual workers also made no attempt to present evidence that the agreements were contracts of employment. Therefore, the agreements were governed by the FAA.

The Commissioner also argued that the arbitration provisions were unconscionable. Once again, however, the Commissioner failed to present evidence to support that assertion. Neither the Commissioner nor the individual workers presented evidence that the workers did not understand the agreements. Absent such evidence, the court could not assume that unconscionability existed. Therefore, the appellate court instructed the trial court to compel arbitration.

This case demonstrates how heavily courts scrutinize arbitration agreements and the evidentiary burdens that both sides face when arbitration provisions are challenged. Employers are advised to have their arbitration agreements reviewed by legal counsel to maximize the likelihood that they will be enforced.

Christine M. Mueller represents employers in litigation and administrative matters, and advises employers and human resources professionals on developing and enforcing appropriate employment policies. 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.