Welcome Back, Arbitration?

I think the rumors of the demise of employment arbitration might have been exaggerated. I for one am guilty of presuming arbitration was dead. And who can blame me, what with the California courts and the 9th Circuit?

Well, today, the U.S. Supreme Court breathed new life into employment arbitration. The Court held that the Federal Arbitration Act preempts California case law prohibiting arbitration agreements that exclude class actions.

So, if arbitration agreements can require only individual arbitration, that means that employers may avoid those expensive California wage and hour class actions by properly implementing arbitration agreements.

The interesting question that the Supreme Court did not decide today is what about California case law imposing lots of other conditions and burdens on employment arbitration. The "Armendariz" line of cases impose special burdens on arbitration that do not apply equally to other kinds of contracts. If you read Concepcion a certain way, Armendariz will not be around long. For example consider this statement in the opinion:


Parties could agree to arbitrate pursuant to the Federal Rules of Civil Procedure, or pursuant to a discovery process rivaling that in litigation. Arbitration is a matter of contract, and the FAA requires courts to honor parties’ expectations. Rent-A-Center, West, 561 U. S., at ___ (slip op., at 3). But what the parties in the aforementioned examples would have agreed to is not arbitration as envisioned by the FAA, lacks its benefits, and therefore may not be required by state law.

Of course, I've been wrong before. Like when I thought arbitration was dead.

The case is AT&T Mobility LLC v. Concepcion and the opinion is here.

Court of Appeal Clarifies "Alter Ego" Liability for Employment Claims

Cooper was the sole shareholder and day to day operator of Auburn Honda, a corporation. A group of former employees sued Auburn Honda and Cooper for age discrimination and other things.  Cooper moved for summary judgment on the ground he could not be held liable, since only the employer is liable for employment discrimination. The plaintiffs argued Cooper indeed was the employer as an "alter ego" of the corporation.

The court did not permit the plaintiffs to claim Cooper was the alter ego of Auburn in opposition to the motion for summary judgment. So, small business owners, here is the discussion of application of the alter ego doctrine to a shareholder:

To succeed on their alter ego claim, plaintiffs must be able to show: (1) such a unity of interest and ownership between the corporation and its equitable owner that no separation actually exists, and (2) an inequitable result if the acts in question are treated as those of the corporation alone. (Sonora Diamond, supra, 83 Cal.App.4th at p. 538.)


Several factors are to be considered in applying the doctrine, among them are: “„[c]ommingling of funds and other assets, failure to segregate funds of the separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses; . . . the treatment by an individual of the assets of the corporation as his own; . . . the failure to obtain authority to issue stock or to subscribe to or issue the same; . . . the holding out by an individual that he is personally liable for the debts of the corporation; . . . the failure to maintain minutes or adequate corporate records . . .; sole ownership of all of the stock in a corporation by one individual or the members of a family; . . . the failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization; . . . the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation; . . . the concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities; . . . the disregard of legal formalities and the failure to maintain arm's length relationships among related entities; . . . the use of the corporate entity to procure labor, services or merchandise for another person or entity; . . . the diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another; . . . the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions; . . . and the formation and use of a corporation to transfer to it the existing liability of another person or entity.‟ . . . [¶] This long list of factors is not exhaustive. The enumerated factors may be considered „[a]mong‟ others „under the particular circumstances of each case.‟" (Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, LLP (1999) 69 Cal.App.4th 223, 249-250, quoting Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 838-840.)

So, the court held that Cooper did not qualify as an alter ego under this list of factors because the Plaintiffs did not bring forth sufficient evidence.

The case is Leek v. Cooper and the opinion is here.