In yet another appellate decision precluding arbitration of employment claims, Elijahjuan v. Superior Ct., CaseNo. BC441598 (Filed Oct. 17, 2012), the California Court of Appeal reiterated that while “California law, like federal law, favors enforcement of valid arbitration agreements,” the Court will not order parties to arbitration where the underlying dispute is not expressly encompassed by the parties’ Arbitration Agreement. (Slip Op. at 4.)
In this case, the plaintiffs filed suit claiming that they were illegally misclassified as independent contractors rather than as employees. As explained by the Court, “The difference between an employee and an independent contractor is significant if for no other reason than employees enjoy benefits not afforded independent contractors” (Slip Op. at 2), such as eligibility for overtime pay, expense reimbursements, and employer-sponsored health benefits, among other things. The defendants moved to compel the plaintiffs’ claims into arbitration, arguing that the parties had signed an Arbitration Agreement covering these claims. The trial court agreed with the defendants and ordered the case into arbitration. The plaintiffs thereafter appealled that order.
The Court of Appeal first addressed whether the order compelling arbitration was even appealable, stating that generally “[a]n order compelling arbitration is not appealable.” (See Slip Op. at 4.) The plaintiffs argued that pursuant to the “death knell doctrine, which renders appealable orders that ‘effectively terminate class claims but permit individual claims to continue,’” the trial court’s order compelling the case into arbitration was appealable. Id. The Court rejected this argument on the ground that the trial court stayed litigation on the plaintiffs’ class claims for violations of the Unfair Business Practices Act, and therefore the court “did not effectively terminate class claims, a prerequisite for the death knell doctrine.” Id. Nevertheless, the Court stated that “‘[a]n appellate court has discretion to treat a purported appeal from a nonappealable order as a petition for writ of mandate,’” and concluded “that issuance of the writ is warranted in this unusual case. . . . If we were to dismiss the appeal, the ultimate reversal of the order would be inevitable, and would follow the substantial expense of completing an arbitration.” (Slip Op. at 4-5 (internal citations omitted).)
The Court of Appeal next addressed whether the plaintiffs’ case fell within the scope of the parties’ Arbitration Agreement, which provided in relevant part that “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 Court stated: “In determining contractual arbitrability, the threshold issue is whether the parties agreed to arbitrate their dispute – i.e., whether the contract included or excluded the dispute from its arbitration clause. . . . The crucial issue [here] is whether the arbitration provision – which applies to any dispute that ‘arises with regard to [the Agreements’] application or interpretation’ includes the alleged misclassification of petitioners as independent contractors, the cornerstone of each cause of action in the [First Amended Complaint (“FAC”)]. We conclude that the current dispute falls outside the ambit of the arbitration provision.” (Slip Op. at 5-6.)
The Court explained: “Petitioners‘ lawsuit does not concern the application or interpretation of the Agreements, but instead seeks to enforce rights arising under the Labor Code benefitting employees but not independent contractors. No allegation in the FAC is based on rights afforded petitioners under the terms of the Agreements. The parties’ dispute therefore cannot be characterized as regarding the application or interpretation of the Agreements.” (Slip Op. at 6.) Based on this reasoning, the Court issued a peremptory writ of mandate commanding the trial court to vacate its order compelling arbitration and issuing a new order denying defendants’ motion to compel arbitration. (Slip Op. at 10.)
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