California Employer Can Compel Arbitration of Unfair Competition Claim

 

August 23, 2019
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An employer can require a worker to arbitrate his unfair competition claim under California law, a state appellate court ruled.

The employee brought several wage and hour claims against his employer, including failure to pay overtime and provide meal and rest periods, as well as a claim of unfair business practices under the state's unfair competition law (UCL).

Although the UCL's purpose is to protect both consumers and competitors by promoting fair competition for goods and services, it also protects employees. An employer's failure to pay wages, for example, may form the basis for a UCL claim. Only two remedies are available: injunctive relief and restitution of the money or property the business unlawfully obtained. An injunction is a court order directing the defendant to stop engaging in a certain act or behavior.

In this case, the plaintiff filed a lawsuit asserting that his employer misclassified him as exempt from overtime pay and that he was due wages. The employer asked the court to enforce an arbitration agreement, and the trial court ordered the parties to arbitrate every claim except the UCL claim, which the court concluded was not arbitrable. The employer appealed.

[SHRM members-only HR Q&A: What are the California rules regarding mandatory arbitration agreements, and how do they differ from federal law?]

In making its ruling, the trial court cited the California Supreme Court's holding in the 2003 case Cruz v. PacifiCare Health Systems Inc. But the appeals court said the Cruz decision at most bars arbitration only of UCL claims that seek an injunction for the benefit of the general public. The ruling does not bar arbitration for claims seeking private injunctive relief and restitution, which the plaintiff in this case sought through the payment of withheld wages.

The employee's UCL claim therefore was subject to arbitration, along with his other claims, the appeals court ruled.

Arbitrability of UCL Claims

The arbitrability of UCL claims depends on the type of relief the plaintiff seeks, the court said, noting that the state Supreme Court in Cruz held that UCL claims for restitution are fully arbitrable, but UCL claims for public injunctive relief cannot be arbitrated.

In seeking public injunctive relief, a plaintiff is proceeding not on his or her own behalf, but on behalf of the general public to stop current deceptive practices and prevent future deceptive practices by the defendant, the court said.

Claims for public injunctive relief are not arbitrable because the injunction's benefit to the public would be frustrated if the remedy was ordered through private arbitration.

However, a remedy that applies only to an individual plaintiff—or to a group of individuals similarly situated to the plaintiff—is not public injunctive relief, the court said.

The court further stated that in this case, the private nature of the plaintiff's UCL claim was immediately evident. In describing the employer's alleged acts of unfair competition, the plaintiff's complaint repeatedly referred to wage and hour violations directed at him only, such as the employer's failures to pay him all earned overtime and premium-pay wages. The plaintiff did not allege that the employer directed similar conduct at other employees, much less the public at large.

Further, the plaintiff's requests for injunctive relief under the UCL were similarly limited to only him, the court noted. He argued that the employer must restore to him all compensation unlawfully withheld. He also asked the court to prevent the employer from committing further wage and hour violations. The only express beneficiary of the requested injunctive relief was the plaintiff, and the only potential beneficiaries were the employer's current employees, not the public at large, the court said.

This confirmed that the employee's UCL claim for injunctive relief was private and therefore subject to arbitration, the court held.

Clifford v. Quest Software, Calif. Ct. App., No. G055858 (July 23, 2019).

Professional Pointer: This ruling reinforces that if an employee's claim against an employer seeks a remedy that will primarily benefit the public, it is less likely that arbitration will be deemed an appropriate forum for resolving that claim.

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

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