Hoover v. American Income Life Insurance Company: California Court Rules That Labor Code Wage Claims Are Not Subject To Arbitration

by Sayema Hameed

In the “fluid and volatile” world of employee arbitration agreements, the California Court of Appeal has issued yet another opinion.  In the wage-and-hour case Hoover v. American Income Life Insurance Company (Fourth District, Div. Tow, Case No. E052864, filed 5/16/12, pub. ordered 6/13/12), the Court ruled that the plaintiff’s statutory wage claims under the California Labor Code and Business and Professions Code were not subject to arbitration.  In addition, the defendant’s 15-month delay in seeking arbitration constituted a waiver of the right to compel arbitration.

The plaintiff Martha Hoover (“Hoover”) worked as a sales agent for about four months for the defendant American Income Life Insurance Company (“AIL”), a Texas-based company that sells life insurance policies in California.  Pursuant to a collective bargaining agreement governing her relationship with AIL, Hoover signed an agent contract with AIL stating that she is an independent contractor, not an employee of the company.  The agent contract also contained an arbitration clause, requiring the parties to arbitrate disputes relating to the agent contract if they are unable to resolve their disputes informally.  Hoover terminated her relationship with AIL voluntarily.

Hoover and a co-plaintiff later filed a class-action complaint against AIL, alleging that AIL had hired them to sell insurance as employees, not as independent contractors, and failed to reimburse them for business expenses, failed to pay minimum wage during training, and failed to pay earned wages due after termination. The complaint alleges causes of action against AIL for violations of the California Labor Code and for unfair business practices.

The parties actively litigated the case in court for 15 months.  Then defendant AIL filed a motion to compel arbitration and to stay (freeze) court litigation of Hoover’s individual claims based on the arbitration clause in Hoover’s agent contract.  The trial court denied the motion to compel arbitration, ruling that Hoover’s “statutory wage claims are not subject to arbitration because neither the arbitration agreement nor the CBA refers to the arbitration of statutory rights” and because “AIL has waived its rights to arbitrate . . . through its participation in the litigation process.”  AIL appealed the ruling.

The Court of Appeal ruled that AIL waived the right to seek arbitration by actively litigating this case in court for more than a year and causing prejudice to Hoover.  According to the Court, AIL’s conduct to date — including two failed efforts to remove the case to federal court, engaging in discovery and taking depositions, providing “recalcitant responses to discovery,” and soliciting putative class members in an effort to reduce the class size —  suggested that AIL’s policy was one of “delay rather than seeking a more prompt and expeditious resolution through arbitration.”

In addition, the Court ruled that Hoover’s statutory wage claims under the Labor Code and Business and Professions Code were not subject to arbitration.  As a general rule, the Court explained, state statutory wage and hour claims are not subject to arbitration, whether the arbitration clause is contained in a collective bargaining agreement or an individual agreement.  An individual’s right to pursue an action to collect unpaid wages is not waivable, despite the existence of an arbitration agreement.

There is an exception to this rule, when there is federal preemption by the Federal Arbitration Act (“FAA”) as applied to contracts evidencing interstate commerce.  In this case, the Court concluded that Hoover’s agent agreement does not involve interstate commerce and is not, therefore, preempted by the FAA.  Even though Hoover sold life insurance policies in California for Texas-based AIL, there was no evidence that Hoover’s relationship with AIL had a specific impact or bearing on interstate commerce in a substantial way.

Also, there was no specific language in Hoover’s agent contract in which she expressly agreed to arbitrate any violation of her statutory rights.  For an arbitration clause to apply to individual statutory claims, there must be a clear and unmistakable waiver of a judicial forum.

Therefore, the arbitration clause in Hoover’s contract does not apply to her statutory wage claims and does not require her to arbitrate her claims.

About Cabada & Hameed LLP

Cabada & Hameed LLP is a law firm serving the greater Southern California region. Formed by “big firm” veterans in 2009, the firm offers exceptional legal representation with experienced attorneys handling Labor & Employment and Business Litigation matters. Partners and co-founders Francisco Cabada and Sayema Hameed bring nearly two decades of legal experience to every matter and ensure that clients receive individualized counsel, around-the-clock availability, the utmost discretion and maintenance of the highest professional and ethical standards. For more information, please visit the website www.cabadahameed.com.

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