Second Division Deems Arbitration Agreements Unconscionable and Executed by Fraud
In a decision recently certified for publication on October 22, 2021, the California Court of Appeals, Second Division, reviewed two versions of arbitration agreements executed between a group of employers and their employees. The decision stems from a class action lawsuit, Yeni Najarro et. al. v. Horizon Personnel Services Inc. et. al., wherein the employees filed eighteen employment related claims against their employers. The employers attempted to hide behind the different versions of arbitration agreements and compel the employees to dispute their claims before an arbitrator which would have prevented the employees from filing a lawsuit in court.
However, the Appellate Court determined that the arbitration agreements were unenforceable as the employee's consent to arbitration was secured by unconscionable terms and fraud in the execution of the agreements. This post will briefly highlight the big picture points of the Appellate Court's decision, and demonstrate how employees can overcome unfair arbitration agreements provided by their employers.
Arbitration Agreement Impact on Employees
We have written before the employers prefer arbitration for various reasons, but arbitration agreements may have a negative impact on employees and disadvantages employees after signing arbitration agreements. It is important to remember that there is an inherent imbalance of bargaining power at the time of hiring - with employers tending to hold all the power over employees. Many employers use this advantage by including arbitration clauses that deprive employees of their right to have their day in court - which was the situation in the Najarro case - and restrict employees in many other ways. The Srourian Law Firm and its attorneys have experience overcoming unfair arbitration agreements and securing employee's employment rights to have their day in court.
What makes an Arbitration Agreement Unconscionable?
In the Najarro class action lawsuit, although there was an arbitration agreement between the employers and employees which delegated power to an arbitrator to preside over and resolve disputes between employers and individual employees, the courts typically have the power to review all agreements or contracts for enforceability.
Unconscionability is one argument employees may raise to have an unfair agreement deemed unenforceable. In California, unconscionability is referred to as the absence of meaningful choice on the part of one party to a contract, and the contract terms unreasonably favor the other party involved in the contract. Unconscionability can be procedural - meaning that during the negotiation process one party may be oppressed or surprised due to having unequal bargaining power. Unconscionability can also be substantive - meaning the substance of the terms will result in overly harsh results to one party and one-sided favorable results to another party.
Applying the doctrine of unconscionability, the Second Division determined that one version of the arbitration agreement was unfair to employees, and therefore unenforceable, because the arbitration agreement (1) forced employee's to waive their right to file a class action lawsuit for employment related claims, (2) the employers did not countersign the agreement, which is required to demonstrate mutual intent to enter into an agreement, and (3) the employees were not provided a meaningful opportunity to negotiate the terms of the arbitration agreement with their employers. Here, the employees were pressured into signing arbitration agreements that took away their power to file a class action lawsuit in court. Underlying the lawsuit was the fact that the employees had difficulty understanding and speaking the English language which the court later addressed in its discussion of fraud in the execution of agreements.
What is Fraud in the Execution?
One key aspect of the Second Division's ruling in Najarro is the court's discussion of fraud in the execution of arbitration agreements and the implications it may have for employees that speak and or read English as a second, or maybe even third or fourth language. In California, a claim for fraud in the execution is not subject to arbitration where the facts can demonstrate that there was not mutual assent between employer and employee to enter into an agreement. Fraud in the execution of an agreement occurs when an employee signs an agreement but is deceived by the employer as to the nature of the agreement; and, the employee does not fully grasp the terms that he or she is agreeing to. In the event that this happens, the court will review the facts underlying the lawsuit in relation to the contract terms to determine whether or not the agreement is void or unenforceable.
In the Najarro lawsuit, the employees were not proficient at reading Spanish and English, nor were they proficient at speaking English. Additionally, the employers - taking advantage of the obvious language barrier - merely handed the arbitration agreements to the employees and referred to the agreement as being "unimportant". Moreover the employers took advantage of the employees by pressuring them to essentially "take it or leave it" when it came to accepting the offer for employment. The employers conditioned the employees employment on on whether or not the employees signed the arbitration agreement.
Basically, the employees were compelled by the employers to sign the arbitration agreement if they wanted to be employed. The employees were not given a reasonable opportunity to read the arbitration agreements or at least have an attorney interpret the agreement for them so that they could understand exactly what they were agreeing to, and what employment rights were being waived. When a situation like this happens, as was the case in Najarro, the court is likely to deem an agreement void or unenforceable because there is no clear intent or mutual assent that the disadvantaged party - here it was non-English speaking employees that also struggled to read Spanish and English - to mutually enter into an arbitration agreement waving vital employment rights.
Each case will depend on the specific facts, so it is important to consult with an experienced labor law attorney to assess the specifics of your case to determine if your employment rights are being violated by an unconscionable arbitration agreement.
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Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including arbitration agreements and filing class action lawsuits, and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.
If you or someone you know suffered employment violations, you may have certain employee rights under state and federal law, and may be entitled to compensation as a part of a class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.
Cannabis Workers Protected under Federal Employment Law
According to a recent decision by the U.S. Court of Appeals for the Tenth Circuit, employees in the cannabis industry are protected under the Federal Labor Standards Act (FLSA) even though the sale of marijuana is prohibited under federal law.
In the case, Kenney v. Helix TCS, the lead plaintiff, security guard Robert Kenney, filed a suit against his former employer, Helix TCS, Inc., a service provider to the legal (state-sanctioned) cannabis industry. Kenney is seeking unpaid overtime pay, damages and costs on behalf of all similarly situation security guards and site supervisors.
Workers in the Cannabis Industry May Be Entitled to Overtime Pay
In the complaint, Kenney alleges that Helix misclassified all security guards as exempt employees. and failed to pay overtime required under the FLSA. In an unsuccessful motion to dismiss, defendant Helix maintains that the FLSA applies only to legal businesses, and the sale of recreational marijuana violates federal law. In essence, despite Colorado law allowing the sale of recreational marijuana, Helix argues that due to the federal Controlled Substances Act (CSA), Kenney, and all Helix employees, are essentially engaging in illegal “drug trafficking” and therefore not protected under the FLSA.
The appellate court affirmed the denial of defendant’s motion to dismiss and held that “employers are not excused from complying with federal laws just because their business practices are federally prohibited.” Moreover, the clear intent of the FLSA is to protect the workers’ well-being, and not to regulate potential illegal activities. Similarly, marijuana workers are not specifically exempt from the FLSA nor does the CSA repeal the protection guaranteed under the FLSA for workers in the cannabis industry. On the contrary, the FLSA has been amended to exclude certain categories of employees in response to the CSA, and has refused to exclude cannabis workers from protection under the FLSA.
The Definition of “Employee” Is Very Broad Under the FLSA
Notably, the U.S. Supreme Court has recognized the “striking breadth” of the definition of employee under the FLSA and purposefully expansive scope designed to maximize the full reach of the Act. As more states legalize the sale of recreational marijuana, this case serves as a reminder that workers in the cannabis industry are protected under the FLSA despite the CSA. Moreover, this is one example of how federal law will not trump a more permissive state law and allow employers in the cannabis industry to deny protections afforded under the FLSA.
California Marijuana Workers and Employee Rights under Federal and State Laws
The California courts have yet to decide the issue of cannabis industry workers and their employee rights under the FLSA. As the courts consider this issue, marijuana workers should be aware of their rights under the California Labor Code and the FLSA. In most cases, workers in the cannabis industry are protected and have employment rights including overtime wages, meal and rest breaks, and protection from missing wages or late paychecks.
FREE CONSULTATION
Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including wage and overtime pay and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.
If you or someone you know suffered employment violations as an employee in the cannabis industry in California, you may have certain employee rights under state and federal law. Marijuana workers may be entitled to overtime wages, meal breaks and rest breaks; and may be entitled to compensation as a part of the class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.
