A California appellate court recently reversed a trial court’s denial of Macy’s motion to compel arbitration. Teimouri v. Macy’s, Inc., D060696 (Cal.App. 4 Dist. May 14, 2013). Click here for a copy of the decision.
A Macy’s sales associate filed a class action against Macy’s in state court, alleging numerous violations of California’s labor code, such as violations of overtime and break requirements. Macy’s has a dispute resolution program for its employees, with the final step being binding arbitration, and the arbitration agreement contained a class waiver.
The trial court denied Macy’s motion to compel arbitration. The appellate court reversed, finding the class action waiver to be enforceable pursuant to the Supreme Court’s Concepcion decision. Although the appellate court found two provisions of Macy’s arbitration agreement to be substantively unconscionable (1 – Macy’s had the unilateral right to modify the arbitration agreement; and 2 – a broad confidentiality provision in the arbitration agreement hindered the employee’s ability to investigate), the appellate court was willing to sever those two provisions since severance would not substantially impact the operation of the arbitration agreement.
The opinion is notable for its detailed discussion of prior California precedent in light of the Supreme Court’s Concepcion decision. The Macy’s court found that the Supreme Court’s Concepcion opinion had “directly and conclusively undercut” and “entirely undermines” the California Supreme Court’s Gentry decision, where the California Supreme Court had developed a four-factor test to determine the validity of class action waivers in connection with statutory rights. (This issue of Concepcion’s overruling of Gentry is currently before the California Supreme Court in a case called Iskanian v. CLS Transportation Los Angeles.)
As I discuss in my book, there is much evidence that the FAA was never intended to cover employment disputes, and the proposed Arbitration Fairness Act of 2013 may remedy this problem.