In a decision that should not go unnoticed in the wake of the California Supreme Court’s ruling in Iskanian v. CLS Transp. Los Angeles, LLC which rejected prior limitations on class action waivers but held representative actions under California’s Private Attorneys General Act cannot be waived, the California Court of Appeal in Malone v. Superior Court (California Bank & Trust), Case No. B253891 (June 17, 2014) upheld an employer’s delegation clause requiring issues relating to the enforceability of an employer’s arbitration agreement to be sent to the arbitrator for resolution. While the U.S. Supreme Court continues to uphold arbitration provisions pursuant to the Federal Arbitration Act (FAA), California courts have been reluctant to follow the Supreme Court’s clear guidance. Malone suggests the California tide is beginning to turn in favor of arbitration.

In Malone, a former employee of California Bank & Trust, filed a class action alleging wage and hour violations on behalf of herself and similarly situated employees. Defendant moved to enforce the arbitration clause in their employee handbook. The agreement included a delegation clause, requiring the arbitrator – rather than a court – decide the gateway issue of whether the agreement is enforceable. Plaintiff argued that both the arbitration agreement and the delegation clause were not enforceable.

On appeal, Plaintiff argued that delegation clauses are unconscionable and fail because: (1) they are outside the reasonable expectation of the parties; (2) the clauses do not apply equally to each party; and (3) the arbitrator has a self-interest in finding the agreement arbitrable that should disqualify him from hearing the gateway issue of whether the agreement is enforceable.  The Court of Appeal rejected Plaintiff’s argument that the arbitrator’s self-interest should impact whether a clause in the arbitration agreement should be enforced as antithetical to the U.S. Supreme Court’s prohibition in AT&T v. Concepcion (2011) 131 S.Ct. 1740 against state obstacles to arbitration. Specifically, the Court of Appeal found Plaintiff’s argument the arbitrators were biased against finding an arbitration agreement unenforceable as “nothing more than an expression of a judicial hostility to arbitration” that is wholly barred by the FAA.

The Court then looked to the particular language of the clause at issue finding the broad language of the provision, which gave the arbitrator exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this binding arbitration agreement,” to be distinguishable from clauses with one-sided language that favored the employer. Having found that two of Plaintiff’s three arguments against the delegation clause to lack merit, the Court held that, if even if true, the argument that the clause was not within the reasonable expectation of the parties, was insufficient to establish the clause was unconscionable and the agreement unenforceable. The Court of Appeals compelled the question of whether the arbitration agreement was unenforceable, along with Plaintiff’s substantive claims, to arbitration pursuant to the employee handbook.

Following the decisions in both Iskanian and Malone, it is clear that employers may develop and enforce employment arbitration agreements with class action waivers and may reserve questions regarding the enforceability of the arbitration agreement to the arbitrator. While the decision is a win for those seeking enforcement of arbitration agreements, employers should be cautioned that the enforceability of delegation clauses and arbitration agreements remain dependent upon the interpretation of the language in the clause and agreement, as well as the circumstances surrounding the arbitration agreement.

For more information on Iskanian v. CLS Transp. Los Angeles, LLC, please click here.