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Franco v. Athens Disposal Co.

March 10, 2009; as modified March 18, 2009


APPEAL from an order of the Superior Court of Los Angeles County, Elizabeth A. Grimes, Judge. Reversed with directions. (Los Angeles County Super. Ct. No. BC369201).

The opinion of the court was delivered by: Mallano, P. J.


Plaintiff, a trash truck driver, filed this suit, denominated a class action, against his former employer, a private company. He alleged the employer had violated the Labor Code by, among other things, denying meal and rest periods. The employer responded with a petition to compel arbitration based on a written agreement with plaintiff. The agreement contained a provision waiving class arbitrations. It also precluded an employee from acting in "a private attorney general capacity," which would bar plaintiff's enforcement of the Labor Code on behalf of other employees.

Plaintiff argued that the petition should be denied because the class arbitration waiver and the private attorney general prohibition were unconscionable. The trial court disagreed and granted the petition, effectively limiting the arbitration to plaintiff's claims.

We conclude that the class arbitration waiver is invalid with respect to the alleged violations of the meal and rest period laws given "the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights." (Gentry v. Superior Court (2007) 42 Cal.4th 443, 463 (Gentry).) In addition, because the arbitration agreement prevents plaintiff from acting as a private attorney general, it conflicts with the Labor Code Private Attorneys General Act of 2004 (PAGA) (§§ 2698--2699.5) - an act that furthers Gentry's goal of comprehensively enforcing state labor laws through statutory sanctions (see Gentry, supra, 42 Cal.4th at pp. 462--463).

Thus, the arbitration agreement is invalid in more than one respect and is unenforceable in its entirety. We conclude that the case should be tried in a court of law.


The allegations, facts, and evidence on appeal are drawn from the complaint and the papers filed in connection with the petition to compel arbitration.

A. The Complaint

On April 9, 2007, plaintiff Edixon Franco filed a class action complaint against Athens Disposal Company, Inc. (Athens), alleging as follows. Franco had been employed by Athens as a nonexempt, hourly employee until he left the company. He brought this suit individually and on behalf of other similarly situated current and former employees. The potential class is significant in size such that individual joinder would be impractical. Athens engaged in a systematic course of illegal payroll practices and policies in violation of the Labor Code and the Business and Professions Code. Athens subjected all of its hourly employees to the identical violations.

The first cause of action alleges that Athens violated Labor Code sections 510 and 1194 by failing to pay overtime. (All statutory references are to the Labor Code unless otherwise indicated.) In the second cause of action, Franco alleges that Athens violated section 226.7 and the applicable Industrial Welfare Commission wage order, No. 9-2001 (Wage Order) (as of Mar. 10, 2009), codified at California Code of Regulations, title 8, section 11090. More specifically, Athens allegedly failed to provide meal periods and to pay an additional hour of compensation per workday to employees who missed a meal period. The third cause of action alleges a separate violation of section 226.7 and the Wage Order by failing to provide rest periods and to pay an additional hour of compensation per workday to employees who missed a rest period. In the fourth cause of action, the complaint asserts a violation of sections 226, 1174, and 1174.5, as well as the Wage Order, by failing to provide necessary payroll information to employees and failing to maintain records on each employee showing all hours worked and all meal periods taken. The fifth cause of action seeks civil penalties authorized by the PAGA for violating the Labor Code as to Franco and other current and former employees; Franco alleges he exhausted the requisite administrative remedies under the act. (See §§ 2699.3, 2699.5.) The sixth cause of action alleges a violation of the California Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.).

B. The Petition to Compel Arbitration

On June 22, 2007, Athens filed a petition to compel arbitration and to dismiss or stay the civil action. The petition stated that Athens was in the business of trash removal, hauling, disposal, and recycling and was engaged in interstate commerce within the meaning of the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1--16). Athens alleged that arbitration was required under the arbitration agreement signed by Franco - written in Spanish - which was attached as an exhibit. According to the petition, the arbitration would be conducted pursuant to the employment arbitration rules of the American Arbitration Association (AAA). Further, "AAA . . . has promulgated supplemental rules for class arbitrations, including rules permitting the AAA and the arbitrator to determine whether and when class claims may be pursued in arbitration and the procedures for arbitration of such claims."

Nevertheless, the attached arbitration agreement provided that "both you and the Company forgo and waive any right to join or consolidate claims in arbitration with others or to make claims in arbitration as a representative or as a member of a class or in a private attorney general capacity. . . . No remedies that otherwise would be available to you individually or to the Company in a court of law, however, will be forfeited by virtue of this agreement . . . . [¶] . . . The parties in any such arbitration will be limited to you and the Company . . . ."

Small claims actions were exempt from arbitration, whether brought by the employee or the company. The agreement provided that it would be governed by the FAA.

C. Proceedings on the Petition

On July 23, 2007, Athens filed a notice of hearing, a memorandum of points and authorities, and supporting evidence, setting the hearing for August 16, 2007. Athens made a straightforward argument: Under the FAA, arbitration was mandatory.

On August 3, 2007, Franco filed opposition papers, asserting that the class arbitration waiver was (1) invalid under Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank) and (2) unconscionable because it prevented him from acting as a private attorney general under the PAGA. Franco contended that the arbitration agreement was so tainted with illegality that Athens's petition should be denied in its entirety.

In its reply, Athens argued that Franco had not filed a timely response to the petition, thereby admitting all of Athens's allegations. (See Code Civ. Proc., §§ 1290, 1290.6.) Athens distinguished Discover Bank as involving a class arbitration waiver in consumer litigation where small sums of damages are caused by a fraudulent credit card scheme. Finally, Athens stated that Franco could seek the penalties authorized under the PAGA because nothing in the arbitration agreement precluded him from doing so.

The petition was heard on August 20, 2007. During argument, the trial court expressed the view that Discover Bank did not extend to employment cases. By order of the same date, the trial court granted the petition and directed Franco to submit his claims to arbitration in accordance with the arbitration agreement, that is, as individual claims. The trial court also ordered that the civil action be dismissed, but the court retained "jurisdiction to either vacate the dismissal in order to enter any order(s) necessary to enforce this order or to aid the arbitration so ordered, or to enter an order to confirm, modify or vacate any award entered in the arbitration proceedings so ordered." Franco filed an appeal from the order granting the petition.

Meanwhile, on September 4, 2007, Franco filed a motion for reconsideration based on the Supreme Court's August 30, 2007 decision in Gentry, supra,42 Cal.4th 443, which extended the rationale of Discover Bank to overtime compensation claims. Notwithstanding Athens's opposition, the trial court granted reconsideration and, by order dated October 22, 2007, instructed the parties to file supplemental papers, stating "the Gentry opinion establishes that a class action arbitration waiver in an employment agreement may be unconscionable."

1. Franco's Supplemental Memorandum

Franco worked for Athens from May 22, 2005, to May 10, 2006. He submitted evidence showing that, based on his hourly wage, his estimated damages for the alleged denial of meal and rest periods totaled $7,750; he would also be entitled to approximately $2,500 in civil penalties. As for Franco's overtime allegations, he was owed around $15,000 in lost pay and $1,250 in civil penalties. Franco filed a declaration in which he stated that, during his employment with Athens: (1) he did not know he was entitled to an hour's pay if Athens did not give him a meal or rest period; (2) he was not aware of all of his rights under the Labor Code or other labor law; (3) in his experience, employees who complained about working conditions were "looked down on" by management and "often los[t] their jobs or [were] treated in ways that force[d] them to quit"; and (4) he "did not feel secure enough to complain about anything [he] may have felt was wrong . . . . [He] felt that if [he] complained about anything [he]would be fired."

Franco filed declarations from three attorneys who specialize in employment law and class actions. As one of Franco's attorneys explained, "Without the ability to litigate these [labor] cases as a class proceeding, my firm could not represent the individual class members especially if we had [to] arbitrate each one separately because of the low damages present in many of these cases, including this one." The other two attorneys were of the same view. One attorney opined that "paying the claims of each individual employee who happens to walk into my or another attorney's office will not deter the employer from continuing to deny meal and rest periods or force the employer to pay its employees the wages due. Rather, preventing class proceedings from occurring will only allow this and other employers to pay the claims of a few employees, if any, and continue violating the Labor Code unabated."

Franco asserted that the petition to compel arbitration should be denied in its entirety because (1) the class arbitration waiver was unconscionable and (2) the private attorney general prohibition precluded him from recovering civil penalties under the PAGA on behalf of other current and former employees.

2. Athens's Supplemental Memorandum

Athens submitted evidence that Franco was employed as a waste hauling driver, he held a commercial driver's license, and he drove one of the company's trash trucks, a three-axle commercial vehicle weighing more than 10,000 pounds.

An operator of that type of vehicle is exempt from the overtime provisions of the Labor Code (§§ 510, 1194). (See Cal. Code Regs., tit. 13, § 1200, subd. (a); Veh. Code, § 34500, subd. (a).) Rather, the operator is subject to the regulations of the Department of the California Highway Patrol. (See Cal. Code Regs., tit.13, §§ 1200--1216.) Franco did not contend he was entitled to overtime compensation based on those regulations. Nor did he suggest another ground for overtime pay under state or federal law, such as the federal Fair Labor Standards Act (FLSA) (29 U.S.C. § 201 et seq.). (See 29 U.S.C. § 213(b)(1) [certain commercial drivers exempt from overtime provisions of FLSA]; 1 Wilcox, Cal. Employment Law (2008) §§ 3.03[1][b], 3.03[2][b], pp. 3-16.1 to 3-17, 3-19 & fn. 40 [certain commercial drivers exempt from California and federal overtime laws].)

Athens also offered evidence that its drivers were told more than once, sometimes in both English and Spanish, to take all required meal and rest periods. The company posted the Wage Order where drivers congregated. Also, Athens utilized an electronic timecard system, and employees "swiped" their individual badges when arriving and leaving the workplace. The company kept accurate computerized records of the hours worked by its drivers. Athens had a policy not to permit or tolerate retaliation against employees for reporting problems, making complaints, or asserting their legal rights.

Athens argued that Gentry did not apply for several reasons and urged the trial court to issue an order compelling arbitration under the arbitration agreement as written.

3. The Trial Court's Ruling

On December 6, 2007, the trial court heard further argument on the petition to compel arbitration and took the matter under submission. Later that day, the court issued an order granting the petition and directing Franco to submit his claims to arbitration in accordance with the arbitration agreement. In its order, the trial court stated that Franco had no overtime claim under the Labor Code, and thus Gentry did not apply. Assuming Gentry applied to the nonovertime claims, Franco had failed to show that class arbitration would be significantly more effective than individual arbitrations. As shown by Athens's evidence, Franco's claims concerning meal and rest periods were not suitable for class treatment because of the preponderance of individualized issues, the specific inquiries into the merits of each individual's claims, and the varying extent of liability. Last, Athens's arbitration program would not disadvantage any employee who pursued claims through individual arbitration.

Franco did not appeal from the December 6, 2007 order but relied on the earlier appeal from the August 20, 2007 order.


"'"Whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment where no conflicting extrinsic evidence in aid of interpretation was introduced in the trial court." [¶] . . . Where the trial court's decision on arbitrability is based upon resolution of disputed facts, we review the decision for substantial evidence. . . .'" (Amalgamated Transit Union Local 1277 v. Los Angeles County Metropolitan Transportation Authority (2003) 107 Cal.App.4th 673, 685.)

The party opposing arbitration has the burden of establishing that an arbitration provision is invalid. (See Brown v. Wells Fargo Bank, NA (2008) 168 Cal.App.4th 938, 955.) "[T]o the extent the trial court's determination that the arbitration agreement was [valid] turned on the resolution of conflicts in the evidence or on factual inferences to be drawn from the evidence, we consider the evidence in the light most favorable to the trial court's ruling and review the trial court's factual ...

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