Arbitration HearingIn Network Capital Funding Corp. v. Papke, ___ Cal.App.4th ___  (October 9, 2014), the California Court of Appeal (Fourth Appellate District, Division Three) affirmed the order of the Orange County Superior Court (Judge Glass) enjoining an employee from seeking class-wide relief in a pending arbitration proceeding against his employer.

Defendant was an employee of plaintiff employer who, when he was hired, signed an agreement which required him to submit any employment-related claims he might have against defendant to arbitration.  Subsequently, defendant initiated arbitration against plaintiff by serving a demand for class arbitration on behalf of himself and all similarly situated current and former employees of defendant.  Defendant’s demand alleged wage and hour claims under the California Labor Code and the Unfair Competition Law as well as a representative claim under the state’s Private Attorneys General Act.  After receiving defendant’s demand, plaintiff filed a lawsuit seeking a judicial declaration that: (1) it is the court’s responsibility to decide whether the Arbitration Agreement authorized class arbitration; and (2) the Arbitration Agreement at issue prohibited class arbitration.  Additionally, plaintiff sought a preliminary injunction enjoining defendant from seeking any class or representative relief in the pending arbitration proceedings. Defendant opposed that motion, demurred to plaintiff’s complaint, and petitioned for an order compelling Plaintiff to submit their dispute to the arbitrator for resolution.  After considering all three motions, the trial court granted plaintiff’s requested preliminary injunction, denied defendant’s petition to compel arbitration, and overruled defendant’s demurrer. The court explained, “the issue of whether the agreement requires arbitration of class actions is one for the court and the court determines that the agreement . . . does not address” class arbitration and therefore disallowed it.  Defendant appealed.

The appellate court agreed, finding that “deciding whether the parties’ arbitration agreement authorizes class arbitration does not simply determine what arbitration procedures the parties agreed to use, but rather whose claims the parties agreed to arbitrate.  Supreme Court precedent requires courts to decide whose claims are covered by an arbitration agreement unless the parties clearly and unmistakably agree to have the arbitrator decide that question.  Because [the] arbitration agreement does not clearly and unmistakably designate the arbitrator to determine whether the agreement authorizes class arbitration, we conclude the trial court properly decided that question.” The appellate court further concluded that the arbitration agreement did not authorize class arbitration.  “The Supreme Court has held a party may not be compelled to submit to class arbitration absent a contractual basis for concluding the party agreed to class arbitration; a mere agreement to submit all claims to arbitration is not sufficient.  Here, the parties’ arbitration agreement shows they did not agree to class arbitration.  The agreement’s broad terms requiring the parties to submit all claims, disputes, and controversies to arbitration, with only a few limited and inapplicable exceptions, fall short of demonstrating a clear agreement to arbitrate class claims.”