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Last week, we discussed how in Iskanian, the Court of Appeal (Second Appellate District, Division Two)  held that the arbitration agreement could not be found unconscionable under Code Civ. Proc., § 1281, based on interference with the ability to vindicate statutory rights. As a result, the Iskanian decision created a split between California appellate courts on the issue whether state statutory claims can be arbitrated.

On June 13, 2012,  the Fourth Appellate District certified for publication Hoover v. Am. Income Life Ins. Co., (2012), making the split even more prominent. Aligning itself with  Brown v. Ralphs Grocery Co. (2011), in  Hoover v. Am. Income Life Ins. Co, the Fourth Appellate District held that viable statutory labor claims cannot be arbitrated. It looks like the California Supreme Court will soon have to step in and address the differences.


Plaintiff Martha Hoover worked as a sales agent for  American Income Life Insurance Company (AIL). AIL is a Texas-based company that sells life insurance policies in California. After voluntarily terminating her relationship with AIL, Hoover filed a class-action complaint against AIL, alleging that AIL had hired them to sell insurance as employees, not as independent contractors, and failed to reimburse them for business expenses and to pay minimum wage during training and earned wages due after termination. Hoover’s relationship with AIL was partly governed by the CBA between AIL, the Office and Professional Employees International Union Local 277 (OPEIU Local 277).

The CBA contained the following arbitration language:

“In the event of any dispute or disagreement arising out of or relating to this contract, the parties shall use their best efforts to settle such disputes. To this effect, they shall negotiate with each other in good faith to reach a just solution. If the parties do not reach a just solution by negotiations as described above, the Agent agrees to utilize the grievance process as outlined in the OPEIU Local 277 agreement. If the dispute is not settled through the grievance process, then upon written notice by either party to the other, all disputes, claims, questions, and controversies of any kind or nature arising out of or relating to this contract shall be submitted to binding arbitration pursuant to the provisions of the collective agreement with OPEIU. The findings of the arbitrator shall be final and binding on all parties and their beneficiaries, successors, assigns or anyone claiming an interest in the contract.”

On December 7, 2010, almost 15 months after the complaint was filed, AIL filed a motion to compel arbitration. The trial court denied the motion to compel, ruling that Hoover’s “statutory wage claims are not subject to arbitration because neither the arbitration agreement nor the CBA refers to the arbitration of statutory rights” and because “AIL has waived its rights to arbitrate . . . through its participation in the litigation process.”

A failure to compel arbitration for more than a year means a waiver of arbitration.

At the outset, the court agreed with the trial court’s decision and concluded that AIL waived the right to seek arbitration by actively litigating the case for more than a year and causing prejudice to Hoover.

State statutory wage and hour claims are not subject to arbitration.

In addressing the issue of arbitration of state statutory claims, the court explained that “even if AIL had not waived its right to assert arbitration, the court would still not compel arbitration.”

As a general rule, state statutory wage and hour claims are not subject to arbitration, whether the arbitration clause is contained in the CBA or an individual agreement. (Barrentine v. Arkansas-Best Freight System,Inc. (1981) 450 U.S. 728, 745, Zavala v. Scott Brothers Dairy, Inc. (2006) 143 Cal.App.4th 585, 592 [rule applicable to wage claims under Labor Code and IWC wage orders].)

The court further noted that “an individual arbitration agreement also does not apply to an action to enforce statutes governing collection of unpaid wages, which “may be maintained without regard to the existence of any private agreement to arbitrate. . . .” (§ 229.) The intent is to assure a judicial forum where there exists a dispute as to wages, notwithstanding the strong public policy favoring arbitration.

FAA did not preempt state statutory claims because the employer failed to show an “interstate commerce” element.

However, the court noted that in certain cases where the parties are engaged in interstate commerce, FAA may preempt state statutory claims and the court would have to compel arbitration under FAA.  In this case, employer failed to establish that the relationship between Hoover and AIL had a specific effect or “bear[ing] on interstate commerce in a substantial way.”

For an arbitration clause to operate there must be a clear and unmistakable waiver of a judicial forum.

AIL argued that Hoover agreed to arbitrate her statutory wage claims under the agent contract and the CBA. Noting that the rights under sections 203, 1194, and 2802 may not be subject to negotiation or waiver, the court stated AIL failed to point to any contractual provision under which Hoover expressly agreed to arbitrate any violations of statutory rights. Instead, the language of the agent contract describes its scope as applying to “any dispute or disagreement arising out of or relating to this contract” and “all disputes, claims, questions, and controversies of any kind or nature arising out of or relating to this contract.”

It is interesting the Hoover court did not discuss the U.S. Supreme Court’s AT&T Mobility LLC v. Concepcion, other than noting that the decision “avert[s] any dependence … on two recent United States Supreme Court opinions, referring to  Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) and AT&T Mobility LLC v. Concepcion (2011).  (addressing the issue of class arbitrations for antitrust claims and consumer sales contracts.) However, the court cited  Brown v. Ralphs Grocery Co. (2011), opining that “AT&T does not provide that a public right . . . can be waived if such a waiver is contrary to state law.” This probably is the most important part of the  holding, favoring employees.  Given the split on the issue it is likely that the California Supreme Court will soon have to address the differences among appellate courts.

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