Key California Employment Law Cases: July 2020
Our Lady of Guadalupe School v. Morrissey-Berru, 140 S. Ct. 2049 (2020)
Summary: The ministerial exception, grounded in First Amendment’s religion clauses, barred teachers’ employment discrimination claims where teachers educated their students in the Catholic faith and guided their students to live their lives in accordance with that faith.
Read our in-depth analysis HERE.
Aixtron, Inc. v. Veeco Instruments Inc., Nos. H045126, H045464, 2020 WL 4013981 (Cal. Ct. App. July 16, 2020)
Summary: Neither the Federal Arbitration Act nor the California Arbitration Act grant an arbitrator subpoena power to order prehearing discovery from third parties if the parties to the arbitration did not provide for such discovery rights in their arbitration agreement.
Facts: A worker resigned from his position with Veeco Instruments, Inc. (“Veeco”) and went to work for Aixtron, Inc. (“Aixtron”), a competitor. Veeco then initiated an arbitration proceeding against the worker alleging breach of contract, breach of the duty of loyalty, and conversion, including alleged data theft. During the discovery phase of the action, the arbitrator granted Veeco’s application for a pre-hearing discovery subpoena for Aixtron’s business records, including a demand that any computers the worker had used be submitted for forensic examination by an agreed-upon third-party neutral expert. Aixtron objected, but the arbitrator granted Veeco’s motion to compel. Aixtron petitioned the trial court seeking judicial review and Veeco filed a separate petition to enforce the arbitrator’s discovery order. Veeco’s petition was granted, while Aixtron’s petition was denied. Aixtron appealed both orders.
Court’s Decision: The California Court of Appeal reversed. The court of appeal initially noted that it was unnecessary to resolve the parties’ dispute over whether the Federal Arbitration Act (“FAA”) or the California Arbitration Act (“CAA”) applied, because neither statutory scheme gave the arbitrator the authority to issue a discovery subpoena under the circumstances of this case. The court of appeal agreed with federal precedent that the FAA did not grant arbitrators implicit powers to order document discovery from nonparties prior to a hearing. Similarly, the court determined that the CAA likewise does not grant an arbitrator the authority to issue pre-hearing discovery subpoenas, unless the parties have provided for such authority in their agreement.
Practical Implications: Businesses should review their arbitration agreements to ensure they provide for the type and amount of discovery they may wish to have available to them in arbitration. While the FAA and CAA may provide adequate discovery mechanisms, businesses should not assume those arbitration rules give the arbitrator the authority to issue pre-hearing discovery such as third-party subpoenas.
Garner v. Inter-State Oil Co., No. C088374, 2020 WL 4218302 (Cal. Ct. App. June 26, 2020), as modified (July 23, 2020)
Summary: Language of arbitration agreement that included “waiver of all rights to a civil jury trial or participation in a civil class action lawsuit” did not waive employee’s right to pursue class claims altogether, but rather only waived his ability to pursue class claims in court and permitted arbitration of class claims.
Facts: Plaintiff filed a class action alleging that his employer, Inter-State Oil Co., violated a variety of wage-and-hour laws. The employer petitioned to compel arbitration of the individual claims and sought dismissal of the class claims entirely. Plaintiff argued that the plain language of the agreement gave him the right to pursue his class claims in arbitration. The trial court disagreed, holding that the language of the agreement indicated Plaintiff waived his right to class claims across the board. It thus granted the employer’s petition to compel. Plaintiff appealed.
Court’s Decision: The California Court of Appeal reversed in part, carefully considering the plain language of the agreement. It called out two particular sentences. The first stated that the parties agreed to mandatory arbitration for “all claims arising out of or related to  employment that could be filed in a court of law.” That sentence listed a series of claims subject to arbitration, including class actions. Read in isolation, the court held this sentence meant the parties agreed to arbitrate any of the listed claims—including class actions. The second sentence stated that the agreement served as a “waiver of all rights to a civil jury trial or participation in a civil class action lawsuit.” Although the employer argued this provision waived all class claims, the court of appeal interpreted “lawsuit” to mean a court action, not an arbitration. This meant the employee actually did not waive his right to pursue class claims if he simply arbitrated them, only that he waived his right to bring class claims in court.
Practical Implications: Employers should closely review their agreements to ensure that they are properly releasing the signatories’ rights to bring certain claims (such as class claims) in any court and make clear that unreleased claims must be brought in the appropriate forum.
Canela v. Costco Wholesale Corp., No. 18-16592, 2020 WL 3866577 (9th Cir. July 9, 2020)
Summary: Representative actions brought under the California Private Attorneys General Act cannot be brought as a “class action” under the Class Action Fairness Act of 2005.
Facts: Plaintiff brought a state court action against his employer, Costco Wholesale Corp. (“Costco”), under the California Private Attorneys General Act (“PAGA”). Costco removed the case to the United States District Court for the Northern District of California based on diversity jurisdiction and the Class Action Fairness Act of 2005 (“CAFA”). Costco then moved for partial summary judgment arguing that Plaintiff lacked Article III standing to represent absent aggrieved employees and could not represent absent aggrieved employees under Rule 23 of the Federal Rules of Civil Procedure. The district court denied Costco’s motion, but certified an interlocutory appeal raising two questions: (1) whether, absent class certification, a PAGA plaintiff in federal court has Article III standing to represent absent aggrieved employees, and (2) whether a PAGA plaintiff in federal court can represent absent aggrieved employees without qualifying for class certification under Rule 23.
Court’s Decision: The Court of Appeals for the Ninth Circuit did not address either question. Instead, it held that the district court did not have jurisdiction over the case and remanded the action to state court. First, the court of appeals held that the amount in controversy did not meet the statutory threshold at the time of removal because PAGA civil penalties cannot be aggregated for this purpose. Second, the court determined that PAGA actions are not sufficiently similar to Rule 23 class actions to trigger CAFA jurisdiction. CAFA relaxed the diversity requirements for a putative “class action,” or any civil action filed under Rule 23 or a state statute or rule that closely resembles Rule 23. PAGA does not closely resemble Rule 23 because, unlike Rule 23, PAGA contains no requirements of numerosity, commonality, or typicality, has no notice requirement for unnamed aggrieved employees, nor may such employees opt out of a PAGA action. The court also noted that while nonparty aggrieved employees are bound by the judgment with respect to recovery of civil penalties, they retain all rights to pursue or recover other remedies available under state or federal law. For this reason, the PAGA claim was not, and could not have been, brought as a “class action” under CAFA.
Practical Implications: This case further solidifies the fact that a PAGA action, while a representative action, is not a “class action” for purposes of federal law. Employers who prefer to litigate in federal court may not be able to do so unless the plaintiff makes actual class claims.