Recent opinions by the California Courts of Appeal should encourage employers to review and assess the enforceability of their arbitration and related employment agreements.

Court Refuses to Enforce Agreement to Shorten Limitations Period on Wage and Hour Claims

In Pellegrino v. Robert Half International, the Court of Appeal found that an agreement to shorten or waive the applicable statute of limitations on wage and hour claims was unenforceable. Plaintiffs, all of whom were classified as exempt administrative employees, worked as account executives for temporary staffing firm Robert Half International (“RHI”). Each employee signed an agreement barring claims made more than six months after termination of employment, and waiving any statute of limitations to the contrary.[1]

More than six months after leaving RHI, the plaintiffs filed suit, alleging that RHI had improperly classified them as exempt employees and seeking damages for California Labor Code violations related to overtime, meal and rest breaks, untimely payment of wages, and itemized wage statements. RHI argued that the plaintiffs’ wage claims were barred by the six-month limitations period in the agreements they had signed. It also asserted that the employees were covered by the administrative exemption.

The court found RHI’s arguments unpersuasive. It held that the agreement shortening the applicable wage and hour statute of limitations unlawfully restricted the plaintiffs’ ability to vindicate their claims. It noted the state’s strong public policy in ensuring that non-exempt employees receive overtime compensation and commissions, meal and rest breaks, itemized wage statements, and timely payment of wages. On public policy grounds, plaintiffs’ statutory rights could not be waived through private agreements. The court also relied on Labor Code section 219, which provides that the type of wage claims at issue in Pellegrino could not “in any way be contravened or set aside by a private agreement, whether written, oral, or implied.” The court thus concluded that enforcing the shorter limitations period found in RHI’s agreements would “result in barring legitimate, unwaivable statutory wage and hour claims asserted by misclassified employees who were unable to discover their employer’s classification error and assert appropriate claims.”

The court also rejected RHI’s position that it had properly classified the plaintiffs as exempt administrative employees. The court focused on evidence that the plaintiffs had presented a showing that their duties as account executives did not directly relate to RHI’s management policies or general business operations. Rather, the plaintiffs placed candidates with clients, pitched RHI’s services, and engaged in other sales activities, and did not supervise other employees. Based on these facts, the court found that RHI had misclassified plaintiffs as exempt from overtime.

Arbitration Agreements Providing for Minimally Sufficient Discovery Are Enforceable

In Dotson v. Amgen, Inc., the Court of Appeal upheld the enforceability of an arbitration agreement that limited each party to one non-expert deposition, unless the party could demonstrate a need for additional depositions.

After Amgen terminated Dotson, an in-house attorney, after four years of employment, he filed suit in the Superior Court for the County of Ventura, alleging wrongful termination. Amgen moved to compel arbitration, but Dotson opposed the motion on the grounds that the arbitration agreement was unconscionable because, among other things, it allowed him to take only one non-expert deposition.

The court rejected Dotson’s position, finding that the limit on depositions was not substantively unconscionable. The court reasoned that arbitration is principally designed to streamline litigation, and that discovery limitations, such as restricting the number of depositions, represent one way to further that goal. Although Amgen’s agreement purported to restrict discovery, it did so in a way that ensured each party could conduct adequate discovery to prove its claims or defenses. The arbitrator, after all, retained “broad discretion … to order the discovery needed to sufficiently litigate the parties’ claims.” Because Amgen’s agreement differed from agreements to arbitrate that granted additional discovery only on a demonstration of a “substantial” or “compelling” need, it was not unconscionable.