US justices may have cleared way to skirt worker arbitrations

The U.S. Supreme Court declined to re-enter another California battle over arbitration in a Monday decision legal observers said would likely have a major impact in how arbitration agreements are presented to employees.

The decision upholds a state Supreme Court decision last summer in favor of a former service technician who filed a complaint for unpaid wages with the state labor commissioner against his former employer, One Toyota of Oakland. The auto dealership filed a motion seeking to move the case to arbitration, which was denied.

The state high court, in a 6-1 decision, overruled a 1st District Court of Appeal decision, concluding the administrative procedure established by the state was allowed and that the arbitration agreement signed by Ken Kho was too convoluted and that he had not been given adequate time to review it.

While the U.S. Supreme Court has come out strongly in favor of arbitration, most notably in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), state courts have carved out exceptions.

Glenn A. Danas, a partner with Robins Kaplan LLP who was not involved in the case, wrote in an email that the U.S. Supreme Court endorsed the state Supreme Court's handling of the case by denying One Toyota of Oakland's writ petition. OTO LLC v. Kho et al., 19-875 (S. Ct., writ petition filed Jan. 13, 2020).

"The denial of the dealership's cert petition signals that the court is not interested in wading into every niche area of California state law simply because an arbitration agreement is involved," he wrote.

The arbitration agreement was unconscionable procedurally and substantively, because the ostensible advantages of arbitration didn't exist in Kho's agreement, Danas said. The arbitration process, which included discovery similar to a court case, "resembled litigation too much."

Several business groups filed amicus curiae briefs with the U.S. Supreme Court supporting the dealership and bemoaned the decision.

"The California Supreme Court continues to pay lip service to SCOTUS when it comes to arbitration but issues its own opinions striking down arbitration agreements on grounds that plainly conflict with the broad preemptive sweep of the Federal Arbitration Act," Fred J. Hiestand, who represents the Civil Justice Association of California, wrote in an email Monday.

Hiestand worries the high court will be treated as a "paper tiger" by California.

Kannon K. Shanmugam, a partner with Paul, Weiss, Rifkind, Wharton & Garrison LLP who represented the dealership in the writ petition, declined to comment.

The labor commissioner awarded $158,000 to Kho but the case will be tried before an Alameda County Superior Court judge.

David A. Rosenfeld, an attorney with Weinberg, Roger & Rosenfeld who represents Kho, said the decision will have an impact by giving court approval to streamlined procedures by the state in wage dispute cases.

"It's a road map to avoid arbitration," he said Monday.

The outcome might leave employers in a bind, trying to avoid giving workers too few rights while also not making arbitration too expensive, Danas said.

"Employers will likely want to be more general, and not attempt to micromanage the arbitration process, as one way to avoid making the process vulnerable to attack from one side or the other," he added.

The state Supreme Court was divided in the case. Justice Carol A. Corrigan, citing the confusing language in the arbitration agreement and the inability of the native Chinese-speaking Kho to have more than a few minutes to read it, said it could not be used.

"Considering the oppressive circumstances present here, we conclude the agreement was unconscionable, rendering it unenforceable," Corrigan wrote.

But Justice Ming W. Chin, in a lengthy dissent, wrote the Federal Arbitration Act "precludes the majority from invalidating this arbitration agreement based on its subjective view that, for the purpose of 'vindicati[ng]' employees' 'statutory rights,' the prescribed arbitration procedure is not as effective as the statutory Berman procedure."