Classy Opinion Gives Win To Employer Resisting Class Action

Even after the United States Supreme Court's decision in AT&T Mobility v. Concepcion, California courts have been reluctant to enforce arbitration agreements that would have the effect of denying employees the availability of the class device to pursue claims under the California Labor Code. A break in that trend occurred recently, however, in Kinecta Alternative Financial Solutions, Inc. v. Superior Court, where the Court of Appeal held that an arbitration provision in an employment contract that neither prohibits nor authorizes class arbitration cannot be interpreted to provide for class arbitration. The Court of Appeal thus reversed a trial court decision imposing class arbitration even though the arbitration provision was silent as to that issue.

The Trial Court Decision

The plaintiff, Kim Malone, was a Branch Manager for Kinecta Federal Credit Union. Malone signed an employment agreement containing an arbitration provision. The arbitration provision expressly provided that binding arbitration would apply to all disputes arising out of Malone's employment with Kinecta. Malone later filed a putative class action on behalf of Kinecta Branch Managers claiming that the company failed to provide them with meal and rest breaks, failed to pay them overtime wages, failed to provide them itemized wage statements, failed to pay them timely termination wages, and violated the unfair competition law.

Kinecta then moved to compel arbitration of Malone's individual claims and dismiss Malone's class claims. The trial court denied Kinecta's motion to dismiss Malone's class claims, but ordered Kinecta and Malone to arbitrate all asserted claims in accordance with the arbitration agreement. In granting the motion to compel arbitration, while denying the motion to dismiss class allegations, the trial court effectively required Kinecta to arbitrate the class claims.

The Court's Holding

The California Court of Appeal reversed, ruling that the trial court had erred in effectively requiring Kinecta to arbitrate class claims when the arbitration agreement contained no express agreement for class-wide arbitration.

The Court of Appeal relied on the U.S. Supreme Court's decision in Stolt-Nielson v. Animalfeeds International Corp., which interpreted the Federal Arbitration Act to provide that a party may not be compelled to submit class claims to arbitration unless the party expressly agreed to do so. The Stolt-Nielson Court stated, "[T]he differences between bilateral and class-action arbitration are too great for arbitrators to presume … that the parties' mere silence on the issue of class-arbitration constitutes consent to resolve their dispute in class proceedings." The Court of Appeal, finding a similar silence on class claims in the arbitration agreement between Malone and Kinecta, held that Kinecta could not be compelled to arbitrate those claims.

The Court of Appeal also considered Malone's argument that, under the California Supreme Court's decision in Gentry v. Superior Court, a party may seek class arbitration whenever class relief is a more effective way of vindicating employees' rights than individual arbitration. The Court of Appeal questioned whether Gentry remains good law after the U.S. Supreme Court's decision in AT&T Mobility LLC v. Concepcion, but declined to decide that issue because Malone failed to make an evidentiary showing that the arbitration should proceed on a class basis, based on the test set forth in Gentry.

What Kinecta Means For Employers

Kinecta provides strong support for California employers seeking to enforce arbitration agreements that call for individual arbitrations while remaining silent on class arbitrations, even where a plaintiff has alleged class claims. This case provides comfort that employers will not be forced to arbitrate class claims where they have not explicitly agreed to do so.

By: Rupa Shah

Rupa Shah is an associate in Seyfarth's San Francisco office. If you would like further information, please contact your Seyfarth attorney, or Rupa Shah at rshah@seyfarth.com.