Arbitration agreements are an increasingly popular way for employers to manage employment disputes effectively and efficiently. A common provision in arbitration agreements is a class action waiver, wherein the parties agree to resolve any dispute on an individual basis. Any employer who has faced a wage and hour class action understands how complex and expensive such cases can be to defend, regardless of merit.
A recent published decision from the California Court of Appeal reminds us that arbitration agreements are subject to many of the pitfalls of contract. Specifically, regardless of what you want it to accomplish, a contract is only as good as what it actually says.
In Garner v. Inter-State Oil Company, an employee filed a class action alleging Inter-State Oil “engaged in various illegal employment practices related to wages, breaks, and reimbursement of business expenses.” The employer sought to compel arbitration of the employee’s claims on an individual basis–i.e., that the class claims would be dismissed and the individual employee’s claims would proceed in arbitration.
The Court of Appeal read the arbitration agreement slightly differently: it ruled that everything, both the individual claims and the class claims, would be going to arbitration.
Yes, there is such a thing as class arbitration. To be clear, this is not what Inter-State Oil wanted. It wanted a ruling that the employee could not maintain a class action and had to proceed in arbitration on an individual basis.
So how did the appellate court decide class arbitration was required? It did so by interpreting two relevant sentences from the arbitration agreement:
"To resolve employment disputes in an efficient and cost-effective manner, you and Inter-State Oil Co. agree that any and all claims arising out of or related to your employment that could be filed in a court of law, including but not limited to, claims of unlawful harassment or discrimination, wrongful demotion, defamation, wrongful discharge, breach of contract, invasion of privacy, or class action shall be submitted to final and binding arbitration, and not to any other forum.”
... "This Arbitration Agreement Is A Waiver Of All Rights To A Civil Jury Trial Or Participation In A Civil Class Action Lawsuit For Claims Arising Out Of Your Employment."
Inter-State Oil focused on the second sentence, arguing that the employee waived the right to “participate in a civil class action lawsuit.” But the court found this reading incomplete, noting that “lawsuit” generally refers to a court action. Thus, just because the employee waived the right to bring a class action lawsuit in court didn’t mean the employee waived the right to participate in any class action.
The Court of Appeal also noted a curious (for Inter-State Oil’s position) inclusion in the first sentence. The first sentence lists a series of claims that the parties agreed to arbitrate. The last entry in that series was “class action.” Read in isolation, this meant the parties “agree that any and all claims arising out of or related to your employment that could be filed in a court of law, including but not limited to . . . class action shall be submitted to final and binding arbitration, and not to any other forum.”
Most likely, whoever drafted this arbitration agreement intended it to mean that the employee waived the right to bring a class action, and that any dispute had to be resolved on an individual basis in arbitration. But this is not the first time a contract was meant to accomplish one thing but written another way. As the Court of Appeal noted, this agreement “is not a model of clarity.”
Take this opportunity to review your arbitration agreement to make sure it says what you mean it to say. Just in case, have legal counsel give it a second look. And if your arbitration agreement is old enough to wear a mask, check to see if it needs updating to meet your needs and the ever-changing legal landscape.