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Legal Update

California Court of Appeal Rejects NLRB’s View that Federal Labor Law Prevents Use of Class Waivers in Employment Arbitration Provisions

24 July 2012
Mayer Brown Legal Update

Twice in as many months, the California state appellate courts have enforced an arbitration agreement requiring arbitration of wage-and-hour claims on an individual basis. The First District Court of Appeal’s decision in Nelsen v. Legacy Partners Residential, Inc., 2012 WL 2913809 (Cal. Ct. App. July 18, 2012), follows a similar decision by the Second District and represents another sign that California courts are taking heed of the U.S. Supreme Court’s broad pro-arbitration holding in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). (Please see our prior Legal Update about the Second District’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, 206 Cal. App. 4th 949 (Ct. App. 2012), pet. for review filed, No. S204032 (July 16, 2012).)

The plaintiff in Nelsen had worked as a property manager for Legacy Partners. When Nelsen was hired, she agreed to an arbitration provision that (as the court interpreted it) authorized arbitration only on an individual—not class-wide—basis. Nelsen later filed a putative class action, alleging that she was deprived of overtime and rest and meal breaks. In response, Legacy Partners filed a motion to compel arbitration, and the superior court granted the motion.

The First District Court of Appeal upheld the order compelling arbitration. Most significantly, the court rejected Nelsen’s argument that requiring arbitration of employment disputes on an individual basis violates the National Labor Relations Act, which protects the rights of employees “to engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Recognizing that the National Labor Relations Board had concluded otherwise in In re D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3. 2012), the California court explained that it viewed Horton as unpersuasive. (Horton is currently on appeal to the Fifth Circuit.) 

The court first explained that “[o]nly two Board members subscribed to [Horton]” and that those members “lacked the benefit of dialogue with a full board or dissenting colleagues.” Second, the court explained that the interplay between the Federal Arbitration Act and the NLRA “falls well outside the Board’s core expertise in collective bargaining and unfair practices.” The court also observed that the NLRB’s decision was unsupported by precedent and was inconsistent with the U.S. Supreme Court’s intervening decision in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), which reaffirmed the principle that if Congress wishes to declare a federal claim non-arbitrable, it must do so clearly and unmistakably. (For a more detailed discussion of CompuCredit, please see our Decision Alert on the case.) The court added that its conclusion was in accord with the Second District’s decision in Iskanian. Last, the court held that, even if the NLRB’s decision in D.R. Horton was correct, Nelsen’s status as a supervisory employee would remove her from the scope of the NLRA.

The court also rejected Nelsen’s contention that the arbitration agreement violated California public policy because it implicitly precluded class arbitration. Nelsen relied heavily on Gentry v. Superior Court, 165 P.3d 556 (Cal. 2007), which sets forth a multi-factor test for determining when an employment arbitration agreement that includes a class-action waiver violates California public policy. The court pointed out that, in light of Concepcion, a number of courts have held that the FAA preempts Gentry. But the First District declined to resolve the issue, instead holding as a matter of state law that Nelsen had failed to submit evidence to satisfy the Gentry factors.

Finally, the court rejected Nelsen’s argument that California exempts her claim for injunctive relief from arbitration under the Broughton-Cruz doctrine, in which the California Supreme Court held that claims for so-called “public injunctive relief” under California consumer protection statues are non-arbitrable. See Broughton v. Cigna Healthplans, 988 P.2d 67 (Cal. 1999); Cruz v. PacifiCare Health Sys., Inc., 66 P.3d 1157 (Cal. 2003). In addition to concluding that Nelsen forfeited the issue, the court held that Concepcion “destroyed the underpinnings of Broughton-Cruz.”

The decision in Nelsen is of great importance to employers that wish to enforce arbitration agreements in cases involving wage-and-hour claims. Nelsen, along with Iskanian, may represent a trend in which California state courts—long viewed as hostile to arbitration—may be coming into line with the strong federal policy favoring arbitration embodied by the FAA. 


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