California Court of Appeal Enforces Contractor’s Agreement to Arbitrate Misclassification Claims Out of State
On Monday, July 21, 2014, the California Court of Appeal issued its opinion in Galen v. Redfin Corp., A138642. This case is important for two reasons: (1) the court upheld an arbitration agreement between a Seattle-based company and a California plaintiff challenging his status (and that of the putative class) as an independent contractor (v. employee), even though the agreement provided for the application of Washington law and a Washington venue; and (2) it reinforces California’s strong policy of enforcing forum-selection clauses, a policy that is relevant outside the context of arbitration, such as in the noncompete context.
On January 16, 2013, Scott Galen filed a putative class action against Redfin Corporation, a real estate firm. Galen alleged that Redfin misclassified its Contract Field Agents as independent contractors and asserted claims for unpaid overtime, missed meal and rest periods, inaccurate and untimely wage statements, waiting time penalties, and unreimbursed business expenses.
Redfin and Galen had entered into a “Field Agent Independent Contractor Agreement,” which expressly stated that Galen would perform his services for Redfin as an independent contractor. The agreement further required the binding arbitration of all disputes “arising out of or related to” the agreement. Notably, the agreement required binding arbitration to take place in Washington state under Washington law, and allowed the prevailing party at arbitration to recover attorneys’ fees and costs. The parties did not dispute that the arbitration clause was governed by the Federal Arbitration Act (“FAA”).
Finding that Galen’s misclassification claims arose out of the agreement, the Court distinguishedElijahjuan v. Superior Court, (2012) 210 Cal. App. 4th 15. The Court highlighted that the Redfin agreement was the very instrument that designated Galen as an independent contractor. As such, the dispute regarding Galen’s classification was necessarily “arising out of or related to” the agreement. The Court of Appeal went a step further, and concurred with Justice Grimes’ dissent in Elijahjuan: “When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”
The Court then analyzed whether the agreement was unconscionable. The adhesive nature of the contract, Redfin’s failure to attach the American Arbitration Association rules, and the lack of highlighting or capitalized letters in the arbitration provision were insufficient evidence that the agreement was procedurally unconscionable. Similarly, neither the mutual attorney fee provision nor the requirement that arbitration proceed in Washington were sufficient to establish that the agreement was substantively unconscionable. The Court emphasized that a party who has freely negotiated away his right to a California forum bears a “heavy burden” of establishing that the selected forum would deprive him of an adequate remedy. Indeed, the Court markedly reaffirmed California’s strong policy of enforcing forum-selection clauses, “regardless of the inherent additional expense and inconvenience of litigating claims in a distant forum.”