Nelson v. Legacy Partners: An Ainley Law Review

If any two cases illustrate the extraordinary instability in wage and hour class actions, those cases surely are the recent decision in Hoover v. American Income Life Insurance (previously reported) and the current case, Nelson v. Legacy Partners. Hoover came out of the blocks strongly in favor of plaintiff. Unlike other recent decisions, Hoover held that only in the case where the employee is “expressly and directly” involved in interstate commerce would the would the Federal Arbitration Act ( FAA) override California’s prohibition (Labor Code section 229) against arbitration agreements purporting to require Plaintiff to arbitrate his or her wage claims. However, the ink was barely dry on the Hoover decision Hoover’s before Nelson jumped out of the shadows reached an almost exactly opposite conclusion. Just as Hoover is a resounding victory for plaintiffs, Nelson, decided August 14, 2012, is a home run for the defense bar.

In Nelson, plaintiff was employed by defendant as a property manager. When she became employed, she signed an arbitration agreement which committed her to arbitrate her claims rather than bring them in a court of law. Nothing in the arbitration agreement addressed whether class action remedies could be brought in the arbitration. As in Hoover, Plaintiff brought multiple claims arising under the Labor Code for unpaid overtime, missed meal breaks etc. The Nelson court completely ignored Labor Code section 229 as well as the Federal statutes and chose to characterize the question of whether a Plaintiff is bound by an arbitration agreement (and whether that agreement may prohibit class actions) as simply an issue of contract interpretation.

In so doing, the Nelson court referenced Gentry v. Superior Court (2007) 42 Cal.4th 443 in which our Supreme Court held that a class action waiver in an arbitration agreement, could be enforced so long as cetian public policy factors were complied with.

In a truly extraordinary judicial detour, the Nelson court held that the Gentry policy factors analysis could be ignored (in fact, the court found the agreement to be procedurally unconscionable) because Gentry involved an arbitration clause which explicitly required the parties to arbitrate and forbade class actions. In Nelson, the arbitration agreement signed by Plaintiff made no mention one way or another of class actions, but merely stated “the agreement covers disputes and controversies between [plaintiff] and [defendants].” Thus, reasoned the court, there was no contractual ban on class arbitration so the policy analysis under Gentry was inapplicable.

Having dispensed with Gentry the court went on to conclude that the language of the agreement “between [plaintiff] and [defendants]” impliedly precluded the right to arbitrate on a class-wide basis. The reasoning that a failure by the employer to expressly preclude class action excuses a policy analysis is absurd. Equally ridiculous is the Court’s failure anywhere in its opinion to address California’s existing prohibition against arbitration of wage and hour claims. According to Nelson, the court is free to ignore state and federal statutes, as well as public policy concerns when reviewing the enforceability of an arbitration agreement. What happened in this case is that the Court invented an arbitration clause where none existed; excused itself from any policy analysis, and gave an opinion directly in conflict with the Legislatureís clear directive against arbitration of wage claims. Why would a court create an arbitration clause where none exists knowing that the State legislature has condemned such clauses? The answer, we believe is that court’s are now willing to stretch beyond reason to block wage and hour class action claims at all costs. The judicial zeitgeist is strongly against class wage claims.

Interestingly, the Nelson court did attempt to address the Hoover decision, which was decided by another district of the Court of Appeal. According to the Nelson decision, The court in Hoover found the arbitration agreement in issue was not subject to the FAA and did not encompass state statutory claims. [citations] That is not our case. Id. at 215. Of course this is pure nonsense. Every California case which does not directly and substantially involve interstate commerce cannot be subject to any arbitration clause, according to the decision in Hoover. By definition, the Hoover analysis should apply each and every time a plaintiff brings a wage and hour claim arguably subject to an arbitration agreement. The Nelson court also found itself struggling to justify its decision in the face of National Labor Relations Boardís decision in D.R. Horton, Inc. (2012) 357 NLRB No. 184 (Horton) (previously reported in the March issue of this update) which found that any arbitration agreement requiring an employee to submit to an arbitration agreement and waiving his or her right to file a class action as a condition of employment was a violation of 29 U.S.C. section 151, commonly known as the National Labor Relations Act.

Horton, of course, was a very significant victory for employees. The Nelson court, for unknown reasons, simply stated that it would not follow Horton: :”For a number of reasons, we decline to follow Horton here.” The court, rather snootily, went on to observe that it was not bound by the decisions of lower federal courts, much less by federal administrative interpretations. The fact that Horton was one of the longest and most thoroughly reasoned administrative decisions ever recorded seemed not to trouble the court whatsoever.

In conclusion, the court in Nelson held that a plaintiff was subject to an arbitration agreement (which the court agreed was procedurally unconscionable) even though no such agreement existed and that she could not arbitrate on a class-wide basis even though the arbitration agreement was silent on class actions in any forum.

At Ainley Law, we fully expect plaintiffís counsel to petition the Supreme Court for review of this decision. As an example of judicial overreach, it stands alone in recent memory. If it remains good law, a worker may be subject to an unconscionable arbitration agreement and lose the ability to litigate on a class-wide basis in the arbitration where there is (a) no prohibition against such a proceeding in the arbitration agreement itself and the employer may do so without reference to Labor Code Section 229 prohibiting arbitration agreements with respect to wage and hour claims and without respect to the procedural safeguards laid down by the Supreme Court in Gentry v. Superior Court (2007) 42 Cal.4th 443. It is remarkable that a court could effectively encourage employers to omit from an arbitration clause prohibitions on class actions. However, that precisely is the effect of the Nelson decision. Where no such prohibition is in place, Gentry, supra, 42 Cal.4th 443, can be ignored, Labor Code Section 229 somehow also ignored, and the Federal Arbitration Act equally ignored. According to the Nelson decision, the matter simply devolves to an issue of contract interpretation. No other issues apply.

It is not surprising that this decision comes from the same district that issued Duran v. US Banc (2012) 203 Cal.App.4th 212 earlier this year. That decision was recently depublished by the Supreme Court and has been accepted for review, with every indication being that it will be reversed. Plaintiff’s litigating wage and hour claims should be aware of the Nelson decision and, to the extent possible, urge the California Supreme Court to depublish it as an almost absurdly pro-employer decision far outside the mainstream.