More Good News for California Employers Who Utilize Employee Arbitration Agreements

On the same day the California Supreme Court upheld an arbitration agreement containing a class action waiver in Iskanian v. CLS Transportation of Los Angeles, LLC, the Ninth Circuit Court of Appeals upheld employment arbitration agreements used by Bloomingdale’s and Nordstrom that contained provisions requiring employees to waive their rights to bring class actions alleging overtime and other employment law violations.  In both actions – Johnmohammadi v. Bloomingdale’s, Inc. and Davis v. Nordstrom, Inc. – the Ninth Circuit compelled individual arbitration of claims that were brought by employees as putative class actions.

In Bloomingdale’s, the Ninth Circuit held that a former sales associate, who had filed a class action to recover allegedly unpaid overtime, had entered into a valid arbitration agreement under which she forfeited her class action rights with respect to employment disputes.  The Court relied on the undisputed fact that Bloomingdale’s had offered Ms. Johnmohammadi a chance to opt out of the arbitration agreement, which she did not take.  The Ninth Circuit stated that “[b]y not opting out within the 30-day period [offered by Bloomingdale’s in its dispute resolution program], she became bound by the terms of the arbitration agreement.”  The Ninth Circuit also concluded that Bloomingdale’s did nothing to coerce Ms. Johnmohammadi into signing away her class action rights.  The Court stated that “Johnmohammadi was fully informed about the consequences of making that election, and she did so free of any express or implied threats of termination or retaliation if she decided to opt out of arbitration.”

The Nordstrom case involved an arbitration policy within an employee handbook that the department store revised in 2011 in light of the U.S. Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, which found that the Federal Arbitration Act preempted a California state rule banning class action waivers in arbitration agreements.  Soon after Nordstrom revised its arbitration policy to require employees to arbitrate most employment disputes on an individual basis, employee Faine Davis filed a class action alleging that Nordstrom violated various state and federal employment laws.  Relying on the revised arbitration provision in its employee handbook, Nordstrom moved to compel Davis to submit to individual arbitration of her claims.  However, its motion was denied by the District Court.

The Ninth Circuit reversed the District Court’s decision, finding that Nordstrom met the minimum requirements under California state law to provide reasonable notice of the change in its arbitration policy.  Specifically, thirty days before the change went into effect, Nordstrom sent to each employee a letter providing notification of the change in policy.  The Ninth Circuit found that Nordstrom “satisfied the minimal requirements under California law for providing employees with reasonable notice of a change to its employee handbook.”

The Ninth Circuit also overturned the District Court’s ruling that Nordstrom was required to inform its employees that continuing their employment after notification of a change in policy would, by default, result in their acceptance of the new arbitration policy.  The Ninth Circuit held instead that “Nordstrom complied with the notice requirement, and that California law imposes no duty upon Nordstrom specifically to inform employees that their continued employment constituted acceptance of new terms of employment.”

These two cases continue the recent trend of courts in California recognizing the validity of employee dispute resolution programs requiring arbitration of disputes, as opposed to lawsuits.  The cases specifically support the inclusion of requirements for individualized dispute resolution (sometimes known as a “class action waiver”), and support the notion that amendments to such programs may be imposed on current employees, as well as newly hired employees.


If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Rex D. Berry or Catherine V. Nystrom | 916.321.4500