©2023 Seyfarth Shaw LLP www.seyfarth.com 2023 Cal-Peculiarities | 91 repeatedly moved to dismiss the complaint because of the arbitration agreement, to no avail. When the Labor Commissioner awarded the sales rep $27,412.60 in commissions and interest, the employer took an appeal for a de novo trial and eventually, after the sales rep had retained counsel and engaged in discovery, petitioned to compel arbitration. The trial court denied the petition, finding that the employer’s delay had waived any right to arbitrate. The Court of Appeal affirmed, reasoning that the employer had waived its right to arbitrate by taking steps inconsistent with an intent to invoke arbitration. During the administrative hearing the employer fully participated by presenting documentary evidence, witness testimony, and argument. Only 20 months later did the employer finally petition to compel arbitration, after the benefits of speedy arbitral resolution had been lost. 5.2.6 California public policy precluding enforcement of arbitration agreements Sometimes explicitly, sometimes implicitly, California has disfavored arbitration on the basis that California public policy prefers litigation to arbitration. This policy preference runs counter to the FAA’s decree that courts must not discriminate against arbitration agreements. But California has persisted, notwithstanding numerous slap-downs by the U.S. Supreme Court (see § 5.2.1). Banning formation of mandatory arbitration agreements. As noted above, a 2019 California statute purported to decree that California businesses—as to agreements entered into, modified, or extended as of 2020—could not require any job applicant or employee to waive any right, forum, or procedure for a violation of FEHA or the Labor Code, including any requirement that an individual opt out or take affirmative action to preserve such rights.97 The statute purported to forbid retaliation against anyone for refusing to consent to an agreement to arbitrate and to impose civil and criminal penalties, injunctive relief, and attorneys’ fees. The legislative strategy was to deter employers from forming arbitration agreements by creating the specter of lawsuits under the Labor Code and FEHA and even the possibility of criminal prosecution. This statute prompted immediate constitutional challenge. Employer groups sued the State of California to stall enforcement of the statute on the ground that it is preempted by the FAA. In February 2020 a federal district court granted a preliminary injunction prohibiting California state officials from enforcing certain provisions of the new law—specifically, sections 432.6(a), (b), and (c) of the Labor Code and section 12953 of the Government Code— to the extent that they involve an arbitration agreement covered by the FAA.98 This decision was affirmed by the Ninth Circuit.99 Because of unclear drafting, however, the new law may also call into question the use of traditional settlement and severance agreements. Voiding arbitration agreements where the agreement drafter fails to pay fees. Employers that mandate employment arbitration agreements must, under California law, pay the parties’ arbitration fees. Drafters of arbitration agreements must pay those fees timely or be deemed to waive their right to arbitrate.100 An employer’s failure to pay entitles the suing employee to withdraw from arbitration and proceed in court and seek sanctions. Motivating this law was a feeling that companies seek to ensnare employees in mandatory arbitration agreements while strategically delaying arbitrations by failing to pay fees and costs. The law now enables class-action attorneys to employ their own strategy: when foiled by an arbitration agreement’s class-action waiver, they can flood the employer with employee arbitration demands to impose ruinous arbitration fees upon the hapless employer. California’s ultimately unsuccessful efforts to invalidate class waivers in arbitration agreements. The California Supreme Court long clung to the notion that public policy prevents the enforcement of arbitration agreements that waive rights to participate in class actions. This notion that class actions were immune from arbitration agreements was known as the Gentry rule, named after a 2007 California Supreme Court decision that said: “We conclude that at least in some cases, the prohibition of class-wide relief would undermine the
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