On February 11, 2016, the Court of Appeal for the Second Appellate District in Amparo Gastelum v. Remax International, Inc., et al. (Court of Appeal B263213, Superior Court Case No. BC515487), held a trial court’s order lifting a stay on litigation is not subject to appeal. The Court reaffirmed established precedent which holds that employer mandated arbitration clauses are not enforceable unless the employer pays for all fees associated with the arbitration. Gastelum is one of many appellate decisions to follow Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, the seminal California case on mandatory employment arbitration agreements. It also follows Wherry, et al. v. Award, Inc., 192 Cal.App. 4th 1242 (2011), a Court of Appeal case holding that Armendariz covers independent contractors as well as employees. The three cases when read together make it clear that if an employer intends to require its workers, whether employees or independent contractors, to arbitrate any disputes, the employer must pay for all arbitration fees.
In Gastelum, plaintiff Amparo Gastelum (“Gastelum”), worked for Remax. When she was initially hired, she signed an “Independent Contractor Agreement” (“Agreement.”) The Agreement required plaintiff to participate in “all efforts to resolve disputes, complaints and other problems… that arise (i) out of this Agreement; (ii) out of [plaintiff’s] conduct, activities or services as a real estate licensee… and contractor agrees to resolve such [d]isputes through mediation, and if not successfully resolved, then through binding arbitration….”
Following her termination, Gastelum sued Remax and her supervisor for wrongful termination, bad faith, retaliation and breach of contract. Defendants subsequently moved to stay the litigation and compel arbitration citing the mandatory arbitration provision contained in the Agreement. Defendants stated in their motion: “Defendants recognize that the Arbitration Agreements are employer-promulgated, and therefore do, in fact, intend to pay the cost of arbitration.” (Emphasis added). The trial court granted defendants’ motion in part: it denied the motion as to plaintiff’s supervisor, since he was not a party to the Agreement. However, the Court granted the motion as to Remax, and stayed that portion of the litigation while the parties’ arbitrated plaintiff’s claims.
Plaintiff subsequently filed a claim for arbitration with the American Arbitration Association (the “AAA”). The AAA indicated it could not determine from the initial filing whether plaintiff was an employee or an independent contractor, and therefore “preserved” the issue for review during the arbitration. The AAA assessed a $7,000 filing fee to commence the arbitration. Plaintiff paid $200 of the fee and asked Remax to pay the remaining $6,800 per the requirements of Armendariz, which Remax refused to do. The AAA terminated the arbitration proceedings due to non-payment of the arbitration fees. Plaintiff subsequently asked the trial court to lift its prior stay on litigation. Plaintiff argued Remax’s failure to pay the arbitration fee was the cause for the termination of the arbitration, and she was, therefore no longer bound by the Agreement’s arbitration provision. The trial court agreed and granted her motion and lifted the litigation stay. Remax appealed.
The primary issue on appeal was whether the trial court’s decision to lift the litigation stay was appealable. The Court of Appeal held that while an order compelling or rejecting arbitration is appealable, an order “lifting a stay of litigation” is reviewable on appeal “but only when there is another appealable order or judgment.” Where the appeal only involves a litigation stay it is, per the Court’s holding, interlocutory in nature and not appealable. By not seeking to re-compel arbitration, Remax failed to present an issue that could be appealed, and the Court dismissed the appeal.
While the Court focused on the issue of whether a litigation stay is appealable, the case also is an important reminder that the holding of Armendariz is not limited to employer/employee arbitration agreements. As noted above, in Wherry the Fourth Appellate District extended the Armendariz standard beyond the employment relationship and applied the same standard to mandatory arbitration agreements for independent contractors. While Gastelum is not a groundbreaking decision, pursuant to all three cases, businesses that intend to use mandatory arbitration provisions for employees, and independent contractors, must ensure the provisions strictly comply with the Armendariz “fairness” standards.
A mandatory arbitration clause will likely be enforced unless it is procedurally and substantively unfair. The arbitration provision may not impose costs on an employee or independent contractor that could not be imposed by a court. Similarly, it may not permit an arbitrator the discretion to award fees and costs that would not be recoverable in court, nor may it impose time deadlines shorter than those imposed by the courts. While courts will usually defer to the intent of the parties and will enforce an agreement containing a mandatory arbitration clause, the agreement must be carefully drafted to follow the Armendariz fairness standards because even minor errors can render an agreement to be unenforceable.
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