April 11, 2022

Key California Employment Law Cases: March 2022

DePuy Synthes Sales Inc. v. Howmedica Osteonics Corp., 28 F.4th 956 (9th Cir. 2022)

Summary: Motion to transfer venue was properly denied where forum-selection clause in employment agreement was void under California Labor Code section 925.

Facts: In September 2017, Jonathan L. Waber (“Waber”) was hired by Howmedica Osteonics Corp. (“HOC”) as a Joint Replacement Sales Associate. Waber signed an employment contract nominally with HOC’s parent company, Stryker Corporation (“Stryker”), which contained a restrictive one-year non-compete clause and forum-selection and choice-of-law clauses requiring adjudication of contract disputes in New Jersey. In July 2018, Waber left Stryker to work at DePuy Synthes Sales Inc. (“DePuy”), a competitor of HOC. Stryker threatened Waber with enforcement of the non-compete clause. Waber responded by sending Stryker a notice stating that he was exercising his right to void the forum-selection and choice-of-law clauses under California Labor Code section 925. DePuy and Waber then filed a preemptive declaratory judgment action in the United States District Court for the Central District of California, seeking a ruling that, among other things, the forum-selection and choice-of-law clauses were void, that California law governed the dispute, and that the non-compete clause was void under California Business and Professions Code section 16600. Stryker filed a motion to dismiss or to transfer venue to the United States District Court for the District of New Jersey. The district court denied Stryker’s motion. DePuy then added HOC as a defendant and amended the complaint. The district court later granted partial summary judgment in favor of DePuy and Waber, holding that sections 925 and 16600 rendered the forum-selection, non-compete, and non-solicitation clauses in Waber’s contract void and unenforceable. The parties filed a joint stipulation dismissing Stryker with prejudice as the wrong party, agreeing that this would not prejudice HOC’s and Stryker’s rights to appeal. The court then entered final judgment in favor of DePuy and Waber. HOC appealed both the order denying transfer and the judgment.

Court’s Decision: The Court of Appeals for the Ninth Circuit affirmed. The court explained that while a determination of venue and transfer issues under 28 U.S.C. § 1404(a) ordinarily requires consideration and balancing of several recognized private and public interest factors, the existence of a valid forum-selection clause in a contract alters the usual transfer analysis and calls for the consideration of modified public and private interest factors. This is referred to as the “modified Atlantic Marine analysis.” As to the predicate question of whether the forum-selection clause was valid, however, the court held that California law (i.e., Labor Code section 925), not federal law, governed. In so holding, the court rejected HOC’s argument that the United States Supreme Court’s decision in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988),preempted all state laws controlling how parties may agree to or void a forum-selection clause.Because Waber had satisfied the prerequisites of section 925, the forum-selection clause was deemed invalid, and, thus, the modified Atlantic Marine analysis did not apply. The court held that the district court did not err in its conclusion that the traditional public and private factors applicable to a transfer motion weighed against transfer. For largely the same reasons, the court affirmed the partial summary judgment in DePuy and Waber’s favor.

Practical Implications: This decision is an important reminder to California employers about the requirements of Labor Code section 925, which applies to any contract entered into, modified, or extended on or after Jan. 1, 2017. Section 925 prohibits employers from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: (1) require the employee to adjudicate (in litigation or arbitration) outside of California a claim arising in California, or (2) deprive the employee of the substantive protection of California law with respect to a controversy arising in California. California employers should be careful to review any agreements with their employees to ensure they do not run afoul of this provision. 

Mendoza v. Trans Valley Transport, 75 Cal. App. 5th 748 (2022)

Summary: Arbitration provision in employee handbook, coupled with signed acknowledgement forms, did not establish agreement to arbitrate.

Facts: Plaintiff Jose Mario Mendoza, a Spanish-speaking former truck driver for Defendants Trans Valley Transport and FTU Labor Contractors Inc., filed a putative class action alleging various wage-and-hour violations. Defendants moved to compel arbitration and dismiss the class claims based on an arbitration agreement included in Defendants’ employee handbook. Plaintiff did not recall having received the handbook at all, and denied having received it in Spanish. Plaintiff did not deny having signed two forms upon his hire, one acknowledging that he would be required to abide by all policies in the handbook, and another acknowledging that he had received the handbook. The forms were both in English, and Plaintiff asserted that he could not read them and that nobody told him what they said, other than that he needed to sign them to work for Defendants. The trial court denied Defendants’ motion to compel arbitration. Defendants appealed.

Court’s Decision: The California Court of Appeal affirmed. The court first determined that Defendants had forfeited their right to have the arbitrator decide whether the parties entered into a contract to arbitrate, and that even if Defendants had not forfeited that right, the question was for the trial court, anyway. Turning to whether the arbitration provision included in the handbook, coupled with the acknowledgment forms, was sufficient to establish an express agreement to arbitrate, the court specifically noted: there was no place on the arbitration provision itself for Plaintiff to acknowledge his agreement to the provision in writing; nothing in the handbook drew the reader’s attention to the arbitration provision or distinguished it from other provisions, and certain stylistic elements in the handbook served to deemphasize the importance of the provision; and the handbook specifically stated that it was intended to be informational, not contractual, could be changed by the employer at any time, and did not create a contract of employment. The court also noted that the acknowledgment forms Plaintiff had signed (even if he had been able to understand them) did not mention arbitration. Ultimately, the court held that there was no express agreement to arbitrate, nor an implied agreement to arbitrate (the fact that Plaintiff received a copy of the handbook and continued working for Defendants did not establish an agreement to arbitrate).

Practical Implications: The legal landscape around employment arbitration agreements in California is always in flux, now more than ever. Employers should carefully consider how they present arbitration agreements and may wish to consult counsel about the potential impact of this and other recent employment arbitration developments. 

Estrada v. Royalty Carpet Mills Inc., Nos. G058397, G058969, 2022 WL 855568 (Cal. Ct. App. Mar. 23, 2022)

Summary: A trial court may not strike a PAGA claim based on manageability.

Facts: Plaintiffs, employees at manufacturing facilities operated by Defendant Royalty Carpet Mills, Inc. brought suit against Defendant. They asserted various class claims and representative claims under the California Labor Code Private Attorneys General Act (“PAGA”) based primarily on alleged meal and rest period violations. The trial court initially certified two classes (one for one facility, and one for a combination of two other facilities). After trial, the court, in relevant part, decertified the two-facility meal period subclass and dismissed the PAGA meal period claim for the two-facility class on grounds that individualized issues made the claims unmanageable. Given the mixed results following trial, both sides appealed.

Court’s Decision: The California Court of Appeal reversed the trial court’s order decertifying the two-facility meal period subclass and its order dismissing the PAGA claim. While the court’s decision addressed other issues raised on appeal, the court expressly stated that it published the decision because of its discussion regarding unmanageable PAGA claims. The court specifically noted that its decision contradicted the court of appeal’s recent decision in Wesson v. Staples the Office Superstore, LLC, 68 Cal. App. 5th 746 (2021). Ultimately, the court held, contrary to the decision in Wesson, that a trial court cannot strike a PAGA claim because of manageability issues. Based on its reading of California Supreme Court authority regarding the difference between PAGA actions and class actions, the court found that allowing dismissal of unmanageable PAGA claims would “effectively graft a class action requirement onto PAGA claims, undermining a core principle” of the basis for PAGA. The court noted that a court’s inability to dismiss an unmanageable PAGA claim does not leave courts powerless. Rather, where appropriate, courts may limit the amount of evidence PAGA plaintiffs may introduce at trial to prove alleged violations as to other aggrieved employees. If plaintiffs, through that evidence, are unable to show “widespread violations in an efficient and reasonable manner,” the remedy is not the dismissal of the claim, but instead a reduction of the penalties awarded.

Practical Implications: This decision is disappointing because it now creates a split in authority as to whether a trial court can strike a PAGA claim as unmanageable. When there is a split in authority at the Court of Appeal, and until the California Supreme Court has stepped in, trial courts have discretion to choose which of the competing cases they will follow. While, as a practical matter, a superior court will ordinarily follow an appellate opinion emanating from its own district, it is not bound to do so. Although the California Supreme Court denied a petition for review and request for depublication of Wesson in December 2021, it seems likely that Estrada may now end up before the high court.