Another Decision on Class Arbitration Waivers

On March 17, the Second District Court of Appeal issued its in Sanchez v. Western Pizza Enterprises, Inc. The Court held:

1. Where a restaurant / employer moved to compel arbitration in an action by a delivery driver / employee alleging that the employer failed to pay minimum wage and failed to reimburse expenses as required under Labor Code Section 2802, the Federal Arbitration Act did not preempt state law in the absence of a conflict as applied, and the question whether to enforce the agreement on general contract law principles, including the question of whether the agreement was unconscionable or contrary to public policy, was for the court, rather than an arbitrator, to decide.

2. The trial court properly held that a class arbitration waiver was contrary to public policy and unenforceable where the action involved enforcement of unwaivable statutory rights (Labor Code Sections 1194 and 2802), and where any individual recovery was likely to be modest, class members faced significant potential of retaliation, and many were likely to be unaware of legal rights due to limited English skills.

3. The arbitration agreement was procedurally unconscionable where the parties' inequality in bargaining power made it likely that employees felt at least some pressure to sign, and where agreement suggested choice of arbitrator could be made from panel of multiple arbitrators that actually included only one.

4. The arbitrator selection provision was not rendered substantively unconscionable by the absence of express provisions requiring written arbitration award and allowing discovery -- which are implied as a matter of law -- or by a small claims provision, but was rendered substantively unconscionable by creating a false sense of mutuality in the selection of the arbitrator, where the agreement proivded that the arbitrator would be selected from a given panel, but in fact the panel only included a single arbitrator.

5. The arbitration agreement was permeated by unlawful purpose and unenforceable where the class arbitration waiver was contrary to public policy and the unconscionable arbitrator selection clause indicated an effort to impose on employees a forum with distinct advantages for the employer.