(1) Mandatory arbitration agreements continue to be enforceable in California. Early this year, the federal Ninth Circuit Court of Appeals in Chamber of Commerce v. Bonta held California’s statutory ban on mandatory employment arbitration agreements (AB 51) is entirely preempted by the Federal Arbitration Act (“FAA”) for employers to whom the FAA applies. Accordingly, such employers may continue to require employees to sign arbitration agreements as a condition of employment.
Since that time, the California Supreme Court has ruled: Arbitration agreements do not prevent employees from bringing PAGA claims in court. As you know from our many newsletters on the topic, arbitration agreements get more than their fair share of attention in California courthouses. One repeatedly litigated issue is the effect of arbitration agreements on an employee's ability to bring Labor Code Private Attorneys General Act (“PAGA”) claims on behalf of other employees in court (vs. being compelled by employers to arbitrate those claims).
For those unfamiliar: PAGA allows employees to sue as a “proxy” of the State of California to secure civil penalties for Labor Code violations. PAGA allows plaintiffs to do this on behalf of other employees - as a group or representative action - for alleged violations that happened each pay period, for each employee, from one year ago through the present. Frequently, penalties for different types of Labor Code violations stack on top of each other.
Some employers have written arbitration agreements with language that waives employees’ ability to bring PAGA claims in court. This PAGA waiver language has led to many legal challenges. Last year, the U.S. Supreme Court weighed in and issued a pro-employer ruling in Viking River Cruises v. Moriana, finding that once an employee heads to arbitration, that employee lacks standing to pursue representative PAGA claims involving other employees in court.
In July 2023, the California Supreme Court (which has the final say on interpreting California laws) took up this issue and reached a conclusion contrary to the U.S. Supreme Court’s Viking River decision, ruling sharply in favor of employees. In Adolph v. Uber Technologies, the CA Supreme Court ruled that an employee who is bound by an enforceable arbitration agreement, and who is compelled to arbitrate their individual claims under PAGA, nonetheless retains standing to sue in court for PAGA penalties on behalf of aggrieved employees. In other words, when an employee has filed a PAGA action comprised of individual and non-individual claims, an order compelling arbitration of individual claims does not strip the employee of standing to litigate non-individual claims in court.
What does this decision mean for California employers with binding arbitration agreements? If your company has a legally compliant arbitration agreement, you remain in good stead as it relates to class action waivers -- such waivers remain enforceable, and courts in California are dismissing class action claims regularly if an arbitration agreement with such language is deemed enforceable under current laws. But as for representative PAGA claims, companies will need to revisit their arbitration agreements to ensure they are consistent with the Adolph ruling. In addition, we are bracing for an ongoing avalanche of PAGA lawsuits in California.
(2) There were other meaningful court decisions on arbitration this year.
- Arbitration fees must be received by arbitrator within 30 days or plaintiff may pursue claims in court. Failure to timely pay arbitration fees means employee can invalidate agreement – fees must be delivered within 30 days (postmarked by 30 days not enough). (Doe v. Super. Court and Cvejic v. Skyview Capital.
- Employers must take steps to ensure electronic signatures are enforceable. With increasing regularity, employees attempt to skirt arbitration agreements by relying on what essentially boils down to the “I do not recall signing the agreement” defense. Despite the arbitration agreement containing their handwritten signature, employees often assert that they do not recall signing the arbitration agreement.
The plaintiff former employees in Iyere v. Wise Auto Group signed arbitration agreements in hard copy format, with handwritten signatures. Nevertheless, they alleged the agreements were not enforceable because they do not recall reading or signing the agreements. The Court rejected the employees’ claims and concluded that absent evidence that their signatures were forged or otherwise inauthentic, the plaintiffs failed to show that the arbitration agreements were not authentic and unenforceable.
Notably, in reaching its conclusion, the Court of Appeal disagreed with the comparison of the instant case with two cases involving electronic signatures, stating that “[w]hile handwritten and electronic signatures once authenticated have the same legal effect, there is a considerable difference between the evidence needed to authenticate the two.” The Court explained that a party that is not able to confirm their handwritten signature is inauthentic or forged in an arbitration agreement cannot create a factual dispute regarding the authenticity of the signature by simply stating that they cannot recall signing the agreement.
This Court of Appeal decision may provide a roadmap for employers in enforcing arbitration agreements even when employees attempt to dodge arbitration by disavowing their handwritten signatures. However, employers should be wary of the different standard applied to evidence authenticating a handwritten signature versus an electronic one. Employers who do not have their employees provide handwritten signatures should ensure that their e-signature procedure is secure and that, if necessary, can demonstrate the security of that procedure with admissible evidence.
(3) On the horizon for 2024: The California Supreme Court will review two cases involving the enforceability of mandatory arbitration agreements, including the agreement content and form, the way in which the agreement was presented to employees, and issues involving the enforceability of an electronic signature (Fuentes v. Empire Nissan and Basith v. LAD Carson-Nm LLC).
