Hoover v. American Income Life Insurance

This case, decided on May 16, 2012, marks a significant expansion of a plaintiffís right to litigate his or her wage and hour claims in court, notwithstanding the existence of an arbitration clause. In Hoover, plaintiffs filed an action alleging violation of various provisions of the Labor Code, including violations of Labor Code Sections 1194 and 1194.2, Wage Order No. 4-2001, and Labor Code Section 2802 (collectively, the “statutes”) to seek reimbursement of business expenses (Section 2802) and minimum wage for time spent on mandatory training (Sections 1190, 1194.2 and Wage Order No. 4-2001). Plaintiffs brought suit on behalf of themselves and on behalf of a putative class of similarly situated people.

After litigating for 15 months, defendant American Income Life Insurance asserted that an arbitration agreement entered into by plaintiffs compelled the plaintiffs to arbitrate all of their class action claims. The Hoover court, in one of the most plaintiff-friendly cases to emerge in recent memory, denied the defendant’s motion to compel arbitration and re-established that, in California, “as a general rule” state statutory wage and hour claims are not subject to arbitration, whether the arbitration clause is contained in a collective bargaining agreement or an individual agreement. A collective bargaining agreement cannot waive the right to sue under applicable federal or state statutes because the statutory rights devolve on petitioners as individual workers, not as members of a collective organization. Id. at 322. The concept that wage and hour claims “as a general rule” are not subject to arbitration is a sea change in recent judicial attitude towards arbitration of wage and hour claims. The California Legislature, as far back as 1959, intended to protect actions to enforce payment of wages from arbitration claims. Labor Code Section 229 states:

“Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate. This section shall not apply to claims involving any dispute concerning the interpretation or application of any collective bargaining agreement containing such an arbitration agreement.”

However, in 1987, the United States Supreme Court, in Perry v. Thomas (1987) 482 U.S. 438, 490, held that the California statute violated section 2 of the Federal Arbitration Act and was, therefore, preempted by federal law. The leading California handbook on arbitration of wage and hour claims continues to assert that section 229 is preempted. In California Employment Litigation, the Rutter Guide, at 18:361, the authors state:

“Lab. [18:361] Lab. C. Section 229 preempted: California Lab. C. Section 229 authorizes lawsuits for unpaid wages without regard to the existence of any private agreement to arbitrate.” As applied to contracts involving interstate commerce, this statute conflicts with Section 2 of the FAA and is therefore preempted.”

Until recently, virtually every decision interpreting an arbitration clause applicable to wage and hours claims has held consistent with Supreme Court precedent that the extremely broad reach of the FAA operates to preempt wage and hour claims in any situation involving interstate commerce. Because the Commerce Clause of the United States’ Constitution is read broadly and inclusively, that meant the FAA applied in virtually every situation. The significance of the Hoover decision, consistent with the decisions in Valles v. Ivy Hill Corp. (9th Cir. 2005) 410 F.3d 1071, 1081-1082 and Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 954 is to limit the reach of the FAA and affirm California’s Labor Code Section 229 in a broad range of areas. In Hoover, for example, the defendant was a Texas corporation. Hoover was engaged in sales which necessarily means the use of telephones, computers, etc., which have typically been held to “involve” interstate commerce, as those means of communications are part of a national grid.

Hoover explicitly turns back the clock and limits preemption of Labor Code Section 229 to those situations where, and only where, the relationship “between [plaintiff and] defendant had a specific effect or bearing on interstate commerce in a substantial way.” Id. at 323. See also Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56-57.

Equally significant for plaintiff is the Hoover court’s determination that an arbitration clause is valid as to individual statutory claims only where there is ìa clear and unmistakable waiver of a judicial forum.î Id. at 1207 (citing Vasquez v. Superior Court (2000) 80 Cal.App.4th 430, 434-436). “A clear and unmistakable waiverî of a statutory right means that the arbitration agreement must explicitly include specific statutes, identified by name or citation.”Id. In Hoover, the arbitration agreement at issue merely stated that “any dispute or agreement arising out of or relating to this contract” and “all disputes, claims, questions, and controversies of any kind or nature arising out of or relating to this contract” must be arbitrated. Id.

This decision is a significant victory for plaintiffs on several levels. First, it means that an arbitration clause is, once again, presumptively valid unless it has a specific and substantial effect on interstate commerce and the agreement itself specifically names statutory provisions which are subject to arbitration. Secondly, and perhaps most significantly, it makes clear that class actions, when they arise from a statute, assert individual statutory rights and therefore are not subject to arbitration unless all of the criteria that would have to be met for an individual are met on a class-wide basis for each of the individuals in the class. In short, the decision is a significant vindication of a plaintiffs’ right to litigate individual wage and and hour claims despite the existence of an arbitration clause. Equally, it allows individuals to litigate their claims in a representative capacity (as a class action) in court. Finally, this decision can be relied on to contest the validity of an arbitration agreement compels arbitration and that also precludes class actions.