Hoover v. American Income Life: Court of Appeal Affirms Order Denying Arbitration Based on Waiver and Labor Code Section 229 -- Supreme Court Denies Review

Hoover v. American Income Life Insurance Company (6/13/12) --- Cal.App.4th --- is yet another battle in the Arbitration Wars.

Plaintiff Martha Hoover worked as a sales agent for defendant American Income Life Insurance Company ("AIL"). She filed a putative class action alleging that AIL misclassified her as an independent contractor and violated California's wage laws and the Unfair Competition Law ("UCL"). Cal. Bus & Prof. Code 17200. The trial court (San Bernardino County Superior, Judge Richard Oberholzer) denied AIL's petition to compel arbitration of Hoover's individual claims, and the Court affirmed:

If Hoover was an employee with viable statutory labor claims, her claims are not subject to arbitration. If Hoover was an independent contractor she cannot assert statutory labor claims as an employee and therefore the question of arbitration seems irrelevant. In either instance, the trial court correctly denied AIL's petition to compel arbitration. Additionally, AIL's 15-month delay in petitioning for arbitration constituted a waiver of the right to compel arbitration.

Slip op. at 2-3. 

Huh? Someone has to decide whether Hoover was an independent contractor or employee. The issue is whether that should be a jury or an arbitrator. This is the hottest issue in employment law right now, and I do not understand how the court could call it irrelevant. Regardless, here is the Court's analysis:

First, it found substantial evidence to support the trial court's decision that AIL waived its right to compel arbitration by litigating the case for over a year, removing it to federal court twice, and conducting discovery in court. Slip op. at 10-15.

Second, the Court held:

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.... 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...." An exception to the general rule occurs when there is federal preemption by [the Federal Arbitration Act or] FAA, as applied to contracts evidencing interstate commerce. 

Slip op. at 15-17, citing Labor Code section 229 and Perry v. Thomas (1987) 482 U.S. 483, 490. Because AIL failed to show that the contract at issue involved interstate commerce, the FAA did not apply, 229 was not preempted, and AIL could not compel arbitration. Slip op. at 17-18. Further, the arbitration agreement did not mention the arbitration of statutory wage claims or identify any statutes. Slip op. at 19. Finally, AIL could not compel arbitration of the UCL injunctive relief claim. Ibid., citing Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315-316; Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 500-501.

The opinion is available here.  

Thank you to Michael Singer for pointing out that the California Supreme Court denied petitions for review and depublication on September 12, 2012.