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San Diego Employers: Act Now to Avoid Class Action Arbitration

As we have discussed, there are many good reasons why San Diego employers want to use arbitration provisions in their employee agreements and want to have their employees agree to waive their right to bring class action lawsuits as part of those mandatory arbitration provisions. However, it is important that the arbitration provision actually and explicitly waives the right to file class actions. If the arbitration provision is silent, or does not waive the right to class action, then your business might be facing an employee class arbitration. You should have an experienced San Diego corporate attorney review your contracts that contain arbitration provisions.

What is a “Class Action Arbitration?”

Class action arbitration is a legal action brought by a class of workers (or customers or whomever) in the same manner as a lawsuit is brought by a class. As with class action litigation, instead of one plaintiff or a handful, you, the San Diego business-owner, are facing a thousand or ten thousand or more plaintiffs each seeking a small recovery based on nearly identical facts.

Here in California, there is already one leading case decided by the US Ninth Circuit Court of Appeals that has allowed class action arbitrations to proceed. See Varela v. Lamps Plus, Inc., No. 16-56085 (US 9th Cir. 2017) (non-precedential). In Varela, the employment agreement contained sweeping and broad language that compelled arbitration in the event of disputes. The contracts stated that the employees agreed to waive “any right I may have to file a lawsuit or other civil action or proceeding relating to my employment with the Company” and to waive “any right I may have to resolve employment disputes through trial by judge or jury.” Finally, the contract stated that “arbitration shall be in lieu of any and all lawsuits or other legal proceedings related to my employment.”

However, the employment agreement did not prohibit any sort of class action arbitration and the employees did not specifically waive their right to pursue class action arbitrations.

Factually, the case arose because private personal information of employees was released by the employer in response to a criminal internet phishing scam. One of the employees sued and filed a class action complaint alleging negligence, breach of contract, invasion of privacy, and other claims. The employer sought to have the whole case sent to one-on-one arbitration. The employee objected to both arbitration and to one-on-one arbitration. Ultimately, the trial court held in favor of the employees and ordered class-wide arbitration. The court held that the failure to address the question of class action arbitrations was to be held against the employer which drafted the agreement. As such, the court held that a class action could be submitted to arbitration. On appeal, the Ninth Circuit affirmed.

Note that the case was accepted for appeal by the US Supreme Court in Washington, D.C. Oral argument was heard in October 2018. The court’s decision is pending.

In the meantime, San Diego businesses are urged to review their employment and other contracts that have arbitration provisions. It is always better to be explicit in a contract than to allow courts to interpret contracts based on “failing” to mention or prohibit various possibilities such as class action arbitration.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq., of San Diego Corporate Law. Call Mr. Leonard at (858) 483-9200 or contact him via email. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provide legal services to business owners in San Diego and the surrounding communities. Like us on Facebook.

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