In A 2-To-1 Split Decision, The California Court Of Appeal Parses The Language Of An Agreement And Denies Arbitration Of California Labor Code Claims

In Elijahjuan v. Superior Court, Case No. B234794 (2nd Dist, Div. 8, Oct. 17, 2012), the California Court of Appeal held that the specific language of an agreement did not require plaintiffs to arbitrate their claims for misclassification as independent contractors in a wage and hour putative class action, concluding that the arbitration language covered only disputes arising from the "application or interpretation" of the plaintiffs' work agreements.

Plaintiffs were truck drivers who filed a class action lawsuit against Mike Campbell & Associates ("Campbell"), claiming that they were denied wage-and-hour benefits under the California Labor Code, as a result of allegedly being misclassified as independent contractors. Plaintiffs also sued for violation of the Unfair Business Practices Act and negligent misrepresentation. Plaintiffs had each signed a work agreement with Campbell, stating that they were independent contractors, not employees, and not subject to the control of Campbell, and detailing the terms of their compensation. The work agreements expressly stated: "having entered into this Agreement in good faith, the Parties agree that the terms and procedures set forth herein shall be controlling if a dispute arises with regard to its application or interpretation." The agreements also contained an arbitration clause, stating in part: "The arbitrator shall base the award on the terms of this Agreement, federal transportation law, . . . and . . . the law of the Federal Arbitration Act[.]"

Campbell moved to compel arbitration based on the work agreements signed by Plaintiffs. The trial court granted the motion and compelled arbitration of all claims except for the Unfair Business Practices Act, which it severed and stayed. The trial court also denied Plaintiffs' request for class arbitration. Plaintiffs then appealed.

The Court of Appeal, in a 2-to-1 split decision, reversed the trial court's rulings. The majority held that the arbitration provision did not apply to plaintiffs' dispute, explaining that Plaintiffs did not sue to enforce rights guaranteed to them under their contracts, but rather to enforce rights set forth under the California Labor Code. The majority reasoned that the "critical dispute" was whether plaintiffs were truly independent contractors based on extra-contractual legal factors (e.g., the level of skill required to perform the job, whether the workers supplied their own tools, how long it took them to perform the...