CALIFORNIA’S 2ND DCA HOLDS THAT CAL WAGE CLAIMS ARE NOT SUBJECT TO ARBITRATION Posted on March 18, 2014 by Aaron Gundzik Reply In Keith v. Francis Capital Management LLC, B245661 (March 11, 2014) Division 4 of California’s Second District Court of Appeal held that California Labor Code section 229 voided an agreement to arbitrate an employee’s claim for unpaid wages. The court declined to consider whether section 229 was preempted by the Federal Arbitration Act because the defendant did not present evidence of an interstate commerce connection. The employee’s victory was, however, pyrrhic because the court ordered the court action stayed pending the arbitration. The plaintiff in Keith was an analyst employed by the defendant in California. Keith claimed that he had not been paid a bonus and filed suit to recover these allegedly unpaid wages. His suit also alleged other labor code violations, including inaccurate wage statements, failure to provide meal and rest periods and waiting time penalties. The parties had signed an arbitration agreement that required most claims including “wage, hour and benefit claims,” to be arbitrated before the American Arbitration Association (“AAA”). The employer’s motion to compel arbitration was denied by the trial court, which found that arbitration was precluded by section 229 and that the arbitration agreement was unconscionable. The Court of Appeal reversed in part. California Labor Code section 229 provides: “[a]ctions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.” The court found that by its plain language, section 229 only applies to claims for unpaid wages asserted under Labor Code sections 200 through 244. “Thus, if a cause of action seeks to collect due and unpaid wages pursuant to sections 200 through 244, that action can be maintained in court, despite an agreement to arbitrate.” Because only one of the plaintiff’s causes of action sought unpaid wages, only that claim was protected from arbitration. The other wages and hour claims – for meal and rest breaks, inaccurate wage statements and waiting time penalties – had to be arbitrated pursuant to the parties’ agreement. And under Code of Civil Procedure section 1281.4, the court action must be stayed pending the completion of the arbitration. Importantly, the court did not reach the issue of whether section 229 was preempted by the FAA. Because the employer failed to produce any evidence that the employee worked in interstate commerce, the court had no factual record from which to decide the preemption issue. Finally, the court rejected the trial court’s finding of unconscionability. The employer’s failure to attach the AAA’s arbitration rules to the arbitration agreement did not amount to procedural unconscionability. And the discovery provisions in the AAA’s arbitration rules were not substantively unconscionable. The result of this case would likely have been different, had the employer presented evidence that the employee’s job involved interstate commerce. Such a showing would have been easy to make since the employee apparently worked in the securities industry.