Change To Handbook Arbitration Policy—Adding Class Action Waiver—Was Valid And Enforceable

by Fenwick & West LLP
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On the same day that the California Supreme Court issued Iskanian, another important ruling with respect to class action arbitration waivers was issued by the Ninth Circuit Court of Appeals. In Davis v. Nordstrom, the court held that an employer’s unilateral change to its employee handbook’s arbitration policy—which required employees to arbitrate nearly all claims individually and precluded employees from filing most class action lawsuits—was enforceable under California law.

Nordstrom had an arbitration provision in its employee handbook that required the arbitration of certain disputes with employees, and required Nordstrom to provide 30 days’ written notice of substantive changes to the arbitration provision to “allow employees time to consider the changes and decide whether or not to continue employment subject to the changes.” In July and August of 2011, Nordstrom revised its arbitration policy to require employees to arbitrate nearly all claims individually, and precluded employees from filing most class action lawsuits. Nordstrom sent letters to employees in June 2011, informing them of the changes.

When Nordstrom employee Faine Davis filed a class action lawsuit shortly thereafter, Nordstrom moved to compel Davis to submit her claims to individual arbitration. After the district court held that Davis and Nordstrom did not enter into a valid arbitration agreement regarding the revisions, Nordstrom appealed to the Ninth Circuit Court of Appeals.

The Ninth Circuit Court of Appeals determined that the changes to the arbitration agreement were validly made. The court noted that California law permitted Nordstrom to unilaterally change the terms of Davis’ at-will employment, and that Davis’ continuation of her employment after being given notice of the revised arbitration terms established that she accepted those new terms. The court also determined that Nordstrom satisfied its own 30 day notice requirement by not enforcing the agreement within 30 days of Davis’ receipt of the revised agreement, and that Nordstrom was not required to specifically inform Davis that her continued employment constituted acceptance of the revised terms of the arbitration agreement. Finally, the court declined to address whether the terms of the policy were unconscionable under California law, noting that the California Supreme Court’s decision in Iskanian would address that issue.

In light of both Davis v. Nordstrom and Iskanian v. CLS, employers should review their arbitration agreements and consider whether to include broad class action waivers in conformance with both decisions. An effectively drafted and implemented class action waiver in an arbitration agreement is generally enforceable and may preclude class action claims—such as class-wide claims for unpaid overtime, meal and rest breaks, etc.—against employers for individual employee damages, although it would not preclude a representative action under PAGA for civil penalties.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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