CA Court Rules That Employee Who Signed Arbitration Agreement Must Arbitrate Vacation Pay Dispute

May a former employee who has a dispute with his former employer about the amount of his vacation pay bring his claim to the California Labor Commissioner when the employee had signed an arbitration agreement as a condition of his employment with his past employer?  A California Court of Appeals has answered that question in favor of arbitration.

The California Labor Code permits an employee who believes that he or she has not received all wages due the employee, to file a Complaint with the State Labor Commissioner. Most of the Complaints received by the Labor Commissioner involve claims for under payment of overtime premium pay, failure to make prompt payment of an employee’s last pay check when the employee quits or is discharged, or disputes about the right to, and computation of, vacation pay.

When a Complaint is filed, the Labor Commissioner will usually schedule an initial conference to determine if the Complaint can be settled. If there is no settlement, the Labor Commissioner will schedule a hearing to receive evidence from the employee and the employer on the issues raised by the Complaint.

If the Labor Commissioner rules in favor of the employee, the employer has the right to a trial de novo in the Superior Court. This means that the employer has an opportunity to retry the case in Superior Court. However, in order to avail itself of this right, the employer must post a bond in the amount of the monetary award issued by the Labor Commissioner.

Suppose that the employee has signed an arbitration agreement, pursuant to the Federal Arbitration Act, which in essence requires the employee to submit any disputes between the employer and the employee to arbitration.  Can the employee still go to the Labor Commissioner if the employee has a dispute about wages with the employer?

A California Court of Appeals has now ruled that an employment arbitration agreement can be enforced to dismiss a former employee’s Labor Commissioner wage claim against his former employer for unpaid vacation pay.

The former employee filed a wage claim with the Labor Commissioner.  The employer filed a motion with the Superior Court to dismiss the claim filed with the Labor Commissioner and compel arbitration of the dispute.

The employee, as a condition of employment with the employer, had signed a pre-dispute agreement that required both parties to submit their employment disputes to “binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act.  The language of the arbitration agreement applied to all disputes that may arise out of the employment context that either party may have against the other “which would otherwise require or allow resort to any court or other governmental dispute resolution forum, whether based on tort, contract, statutory, or equitable law, or otherwise.”

Under the California arbitration act, a court “shall order the parties to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists.”  Unless the party seeking arbitration has waived arbitration, grounds exist for revocation of the agreement, or a party to the arbitration agreement is also a party to a pending matter with a third party and there is a possibility of conflicting rulings on a common issue.

In its decision, the Court of Appeal emphasized that the validity and substantive rights of the arbitration agreement was not in dispute, and that the only question concerned the forum in which the parties’ dispute would be heard – before an arbitrator or the Labor Commissioner.  The Court noted that by agreeing to arbitrate a wage claim based upon the requirements concerning the payment of wages contained in the California Labor Code, the employee was not forgoing the substantive rights afforded by the statute; the employee was only submitting to their resolution by an arbitrator.

In reaching this conclusion, the Court of Appeals relied upon a recent decision of the United States Supreme Court which involved a claim filed with the Labor Commissioner by an employee who had signed an arbitration agreement.  In requiring the employee to submit that Complaint to arbitration, the Supreme Court stated that when parties agree to arbitrate all questions arising under a contract, any state law which places primary jurisdiction over the disputed issue in another forum, whether judicial or administrative, is superseded by the Federal Arbitration Act.

For any questions about the subjects discussed in this article, contact our office at 949.752.0101 or 310.461.3561, or email us at russ@employersattorneys.com.

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