Labor Code Section 229 Precluded Arbitration of Claim for Unpaid Wages

A recent decision confirms that workers may bring unpaid wages claims to court even though they may have agreed to arbitrate all employment-related disputes. In the case of Lane v. Francis Capital Mgmt. LLC, 224 Cal. App. 4^th 676 (2014), the California Court of Appeal found that California Labor Code Section 229 empowers a worker to maintain a court action for unpaid wages pursuant to the California Labor Code regardless of whether or not that worker had signed an arbitration agreement.

This case arose from a dispute between Martin Keith Lane, Jr. (“Lane”) and his former employer, Francis Capital Management LLC (“FCM”). FCM had hired Lane to work as an investment analyst. As a condition of his employment, Lane executed an arbitration agreement. In the arbitration agreement, Lane and FCM agreed that all employment-related disputes would be submitted to arbitration, excluding claims for worker’s compensation, unemployment benefits, as well as certain administrative claims. The arbitration agreement further specified that any arbitration would be governed by the laws of California. Finally, the parties agreed to arbitrate any controversies under the agreement under the American Arbitration Association’s (“AAA”) “Employment Arbitration Rules and Mediation Procedures” and the agreement gave the arbiter authority to award any damages or remedies authorized by law, including costs and attorneys’ fees.

After FCM terminated Lane’s employment, Lane filed a complaint for damages, in which he claimed that FCM had wrongfully terminated him, failed to pay a proper bonus, and engaged in unlawful labor practices. In response, FCM moved to compel arbitration, claiming that it and Lane were parties to a binding arbitration agreement that applied to all of Lane’s claims. FCM also sought to stay Lane’s lawsuit pending the outcome of the arbitration. Lane opposed, arguing that his California Labor Code claims were not subject to arbitration and even if they were, the arbitration agreement was unconscionable. The trial court, relying on section 229, found that, absent Federal Arbitration Act (“FAA”) preemption, Lane could maintain his claims for unpaid wages in court, even though he’d agreed to arbitrate. FCM appealed.

The two issues on appeal were (1) whether section 229 allowed Lane to litigate his claims even though Lane had agreed to arbitration, and (2) if Lane had to arbitrate, was the arbitration agreement unconscionable?

As to the first question, Labor Code Section 229 provides that “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.” Section 229 covers claims brought pursuant to sections 200-244 of the Labor Code. As a result, a party may maintain any cause of action seeking to collect due and unpaid wages pursuant to sections 200-244 in court, despite an agreement to arbitrate. Here, the Court of Appeal found that only 1 of Lane’s 8 causes of action fell under section 229—the cause of action for unpaid wages. Lane could therefore maintain his claims for unpaid wages in court. The other seven causes of action, however, did not fall under section 229 and were therefore subject to arbitration as per the agreement.

As to the second question, whether the arbitration agreement was unconscionable, the Appellate court found that the agreement was neither procedurally nor substantively unconscionable. Lane had argued the contract was procedurally unconscionable because FCM had failed to attach the AAA rules. Lane had further argued that the agreement was substantively unconscionable because it incorporated the AAA rules by reference and provided no express provision for discovery. Lane’s procedural unconscionability arguments were unavailing because the arbitration agreement referenced the AAA rules, which were easily accessible to both parties. Lane’s substantive unconscionability arguments were unavailing because it is permissible to incorporate the AAA rules by reference and the AAA rules themselves provide discovery provisions. The court thus found that the arbitration agreement was not unconscionable. For this reason the Court of Appeal held that the trial court erred in denying FCM’s motion to compel as to all but the cause of action seeking to collect unpaid wages. The Court remanded the case, with an instruction to order arbitration on the seven remaining causes of action.

This case is important because it affirms that a worker may maintain claims falling under section 229 in court notwithstanding a private arbitration agreement. This is helpful for employees who might seek to bring an action in court for unpaid wages pursuant to the Labor Code. At the same time, employees seeking to challenge the legality of an arbitration agreement should know that their arbitration agreement is not necessarily unfair, just because it is an adhesion contact. If you have any employment-related dispute, contact he employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside, and Los Angeles. Call (949) 375-4734.