The Fourth Appellate District, Division Three, recently held in Nguyen
v. Applied Medical, that the question of whether an arbitration
clause in an employment agreement contemplates class claims is a question for
the arbitrator to decide, not the Superior Court.
The Class Action Complaint
The Class Action Complaint
On September 30, 2014, Da Loc Nguyen filed a putative class action
complaint against Applied Medical Resources Corp. (“Applied”) in Orange County
Superior Court. On November 3, 2014, Nguyen filed a First Amended Class Action Complaint,
asserting numerous wage and hour violations by Applied on behalf of nonexempt
employees employed (or formerly employed) by Applied in California for things
such as failing to pay overtime, forcing unpaid off the clock work as well as
meal and rest break violations under the California Labor Code. Nguyen
also alleged that Applied violated Labor Code sections 2698 and 2699, the
Private Attorneys General Act (“PAGA”).
In applying to Applied, Nguyen
singed an arbitration agreement found in one paragraph of his four (4) paragraph
application. Paragraph one generally
states that the information provided is truthful and accurate. The second paragraph generally authorizes
Applied to check Nguyen’s references. The
third paragraph contained an arbitration clause.
The Motion to Compel Arbitration
On March 17, 2015, Applied filed a Motion to Compel Arbitration. Applied’s Motion generally argued that: (1)
the Application’s arbitration clause was enforceable; and (2) the arbitration
clause precludes Nguyen from arbitrating class claims.
On April 20, 2015, Nguyen filed his Opposition and objections. The Opposition argued, that the arbitration
clause is unenforceable because it is both procedurally unconscionable and
substantively unconscionable. The
Opposition specifically argued that the arbitration clause is procedurally
unconscionable because: (1) it is an adhesion contract; (2) the arbitration
clause is hidden in an Employment Application; and (3) Applied failed to
provide Nguyen with a copy of the applicable rules.The Opposition argued that
the arbitration clause is substantively unconscionable because: (1) the
arbitration clause lacks mutuality as it only requires Nguyen to arbitrate his
claims against Applied; (2) unfairly requires Nguyen to bear arbitration costs;
and (3) fails to provide the minimal guarantees required by Armendariz v.
Foundation Health Psychcare Services Inc. (2000) 24 Cal.4th 83. The Opposition also argued that severance was
inappropriate because the arbitration clause is permeated with
unconscionability. Finally, the
Opposition argued that the Application contemplates class claims. On April 24, 2015, Applied filed its Reply
The Trial Court’s Ruling
On June 1, 2015, the trial court issued an Order granting Applied’s
Motion to Compel, holding that: (1) Nguyen’s individual claims shall be
arbitrated; (2) all class and representative claims are dismissed/stricken with
prejudice (except the PAGA claims); (3) the PAGA claims are stayed pending the
outcome of the arbitration; and (4) Applied “shall pay all costs of the
arbitration other than those that plaintiff would necessarily pay in a court
proceeding.” The trial court explained
its ruling as follows:
Regarding, procedural
unconscionability, the trial court noted that “[t]he fact that [Nguyen] signed
the application as he was required to do so to seek employment may make the
contract one of adhesion . . . .” The
court also noted: “The fact that the AAA
rules were not attached or otherwise provided may make the application procedurally
unconscionable . . . .” Nevertheless,
the trial court held that the failure to attach the AAA rules “fails to be a
matter of substantial oppressiveness. It would seem unlikely that a civil
engineer, with six years of college, could not traverse the internet to find
such rules.” In doing so the trial Court had no evidence that Mr. Nguyen even
spoke good English and failed to observe why he would be working an assembly
line job if he was actually an American civil engineer, not one trained in
Vietnam and Australia.
Regarding, substantive
unconscionability, the trial court held that “even if the application is
procedurally unconscionable, it is not substantively unconscionable.” The trial court specifically noted: “The issue of the costs provision is not a
substantial issue, as the court orders the costs to be paid appropriately, and
the term does not permeate the application with substantive unconscionability.
It is a term easily severable.” .
Regarding mutuality, the Order
states: “In light of [AT&T
Mobility LLC v. Concepcion, 563 U.S. 333 (2011)], it is highly unlikely
that mutuality of obligation precludes the enforcement of an arbitration
agreement.” (emphasis added). The Order then concluded that the arbitration
agreement was mutual because it “requires arbitration of all disputes, not
limited to those only raised by plaintiff.
It is mutual.”
The Order also concluded that
the arbitration agreement did not apply to class claims, stating:
There is no indication in the
arbitration provision that class actions or representative claims were included
in the arbitration provision. There is
no ambiguity. There are only two parties
to the application, plaintiff and the defendant. The words found in the application that “all
disputes.... which might arise out of or relate to my employment with the
Company,” are not, by their very nature, disputes relating to or arising out of
other employees’ employment with the company.
Finally, the trial court
stayed the PAGA claims pending the arbitration’s outcome and did not address any
of the objections. On July 2, 2015,
Nguyen, through his counsel, Quintilone & Associates timely filed a Notice
of Appeal.
Appellate Court Ruling
On October 4, 2016, the Appellate Court reversed the trial Court holding
that it was improper to dismiss the class action claims and that the
arbitrator, and not the court, decide whether an arbitration agreement
contemplates class claims. The Court of
Appeal noted that under Sandquist v. Lebo Automotive, (2016) 1 Cal. 5th
233, California Supreme Court held that the determination of “who decides
whether the [arbitration] agreement permits or prohibits class wide arbitration,
a court or the arbitrator” is in the first instance a matter of agreement, with
the parties’ agreement subject to interpretation under state contract law. Id. at p. 241. Interpreting an arbitration agreement
containing language similar to that used in this case, Sandquist concluded
that ―[u]nder state law, these parties’ arbitration agreement allocates the
decision to the arbitrator. Ibid.
According to the court, [t]he remedy when an issue has erroneously been
addressed by a court rather than an arbitrator is to remand with instructions
that the correct decision maker consider the issue anew. [T]he parties have not yet obtained the
arbitration decision that their contracts foresee; remanding enforces the
parties’ arbitration agreements according to their terms. Id. at p. 261.
As a result, the Court of
Appeal, Fourth Appellate District, Division Three issued a
peremptory writ of mandate commanding the trial court to vacate that portion of
its order dismissing the class claims to allow the arbitrator to decide whether
the arbitration clause permits arbitration on a class-wide basis. The decision was published and can be found here
What does this mean for employees and employers in the state of California? It means that if there is an issue of whether class claims and the parties are bound to arbitration through the agreement, the decision may be left to the arbitrator, not the court, to decide whether the agreement contemplates class claims. The public policy favoring arbitration as an alternative dispute resolution tool was also reinforced, and the if the arbitration agreement is ambiguous on whether or not class claims are included, then the ambiguity will be interpreted in favor of the employee, who does not draft the employment agreement.
What does this mean for employees and employers in the state of California? It means that if there is an issue of whether class claims and the parties are bound to arbitration through the agreement, the decision may be left to the arbitrator, not the court, to decide whether the agreement contemplates class claims. The public policy favoring arbitration as an alternative dispute resolution tool was also reinforced, and the if the arbitration agreement is ambiguous on whether or not class claims are included, then the ambiguity will be interpreted in favor of the employee, who does not draft the employment agreement.
This post was
drafted with the assistance from Law Clerk George A. Aloupas of Quintilone
& Associates.
If you have any questions about the Sandquist case, the Nguyen v. Applied Medical case in which Quintilone & Associates was counsel for, or have a claim against your employer for any violation of the California Labor Code, please feel free to contact:
If you have any questions about the Sandquist case, the Nguyen v. Applied Medical case in which Quintilone & Associates was counsel for, or have a claim against your employer for any violation of the California Labor Code, please feel free to contact:
Richard E. Quintilone II,
Esq.
QUINTILONE & ASSOCIATES
22974 El Toro, Ste. 100
Lake Forest, CA 92630
Tel.: (949) 458-9675
Fax: (949) 458-9679
Email: req@quintlaw.com
Web www.quintlaw.com
