Employer Waived Right to Arbitrate Wage and Hour Claims

Takeaway: California law, like the Federal Arbitration Act, reflects a strong policy favoring arbitration agreements. The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense.

An employer waived its right to arbitrate wage and hour claims by unreasonably delaying its motion to compel arbitration of those claims, a California appeals court ruled.

The employer is a securities broker-dealer firm that provides financial planning and investment products through its financial advisors. It classifies its California financial advisors as exempt.

In March 2015, the employee, a financial advisor, filed a complaint against the employer individually and on behalf of a proposed class. In the first seven causes of action, he alleged that the employer misclassified him and his fellow employees as exempt and therefore committed various Labor Code violations, including failure to pay minimum wage, failure to pay overtime, and failure to provide meal and rest periods. In the remaining 11 causes of action, the employee asserted claims that were personal to him, such as disability discrimination, failure to accommodate, retaliation, and wrongful termination.

One month later, the employee added a 19th cause of action under the Private Attorneys General Act (PAGA). PAGA is a 2004 statute that permits private plaintiffs to sue their employers on behalf of the state of California and collect civil penalties for Labor Code violations committed against them and other aggrieved employees.

The employee and the employer agreed that the 11 personal claims would be arbitrated and the remaining eight causes of action would proceed in the trial court. The parties litigated the class and PAGA claims in the trial court over the next several years, conducting extensive discovery, motion practice, and trial preparation.

Two events occurred in 2022 that, according to the employer, afforded it a new right to compel certain claims to arbitration, notwithstanding its 2015 agreement. First, in June 2022, the U.S. Supreme Court issued its decision in Viking River Cruises Inc. v. Moriana (2022), holding that, contrary to prior California Supreme Court authority, an employer may enforce an employee’s agreement to arbitrate individual PAGA claims. Second, in the wake of Viking River, the employer asked its workforce to sign arbitration agreements, and two dozen class members agreed to do so in September and October 2022.

In March 2023, just five months before trial, the employer filed a motion to 1) compel the named plaintiffs to arbitrate their individual PAGA claims under Viking River and 2) compel to arbitration the class members who signed arbitration agreements in fall 2022. The trial court denied the motion, and the employer appealed.

Waiver is a defense to arbitration, the court noted. The term “waiver” has a number of meanings in statute and case law. “Waiver” generally denotes the voluntary relinquishment of a known right, but it can also refer to the loss of a right as a result of a party’s failure to perform an act it is required to perform, regardless of the party’s intent to relinquish the right. In the arbitration context, the term “waiver” has also been used as a shorthand statement for the conclusion that a contractual right to arbitration has been lost.

California courts have found a waiver of the right to demand arbitration in a variety of contexts, and no single test delineates the nature of the conduct that will constitute a waiver of arbitration, the court said.

Courts have found a waiver of the right to arbitration if the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration or has unreasonably delayed in undertaking the procedure. Although participating in the litigation of an arbitrable claim does not by itself waive a party’s right to later seek to arbitrate the matter, at some point, continued litigation of the dispute justifies a finding of waiver, the court explained.  

The appeals court affirmed the denial of the motion to compel arbitration. Even if Viking River or the fall 2022 arbitration agreements gave the employer a new right to move to compel certain claims to arbitration, it waited too long to make its motion, particularly in light of the looming trial date, the court said. Viking River was decided in June 2022. The 24 class members signed arbitration agreements in September and October 2022, but the employer waited until March 2023 to file its motion to compel arbitration.

During that interim period, the employer conducted discovery and filed other motions. It did not attempt to enforce its alleged arbitration rights until nine months  after the Viking River decision and five to six months after select class members signed the new arbitration agreements. The employer offered no reasonable explanation for its delay in filing its motion. Therefore, the employer waived its right to compel arbitration, the court concluded. 

Semprini v. Wedbush Securities Inc., Calif. Ct. App., No. G062622 (April 18, 2024).

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.