Privacy, Business and Law

In the recent case of First America Automotive, Inc. v. Sweeney, 2000 WL 378257 (Cal. App. 6 Dist.), Edwin Sweeney, who had been employed by First America Automotive as a car salesman, sought to have his claim for wages heard by the Labor Commissioner, despite a provision in his employment agreement providing for arbitration of disputes arising from his employment contract.

The California Court of Appeal held that Sweeney’s claim for wages was subject to arbitration under the Federal Arbitration Act (FAA), which provides that arbitration agreements contained in contracts regarding maritime or commerce transactions are valid and enforceable.

The California Court of Appeal’s decision finally resolves a long-standing debate over whether arbitration agreements contained in employment contracts can require that wage claims be submitted to arbitration under conflicting state and federal law. California Labor Code section 229 specifically exempts from arbitration claims for unpaid wages. The FAA, on the other hand, provides for the enforceability of arbitration agreements, but also excepts from its coverage contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. Thus, the issue which remained unresolved until the Firstamerica case was whether a claim for wages was not subject to arbitration under California Labor Code section 229, despite the existence of an arbitration clause in an employment agreement, or whether the FAA applies to such arbitration provisions, and requires that wage claims be submitted to arbitration.

The California Court of Appeal concluded that wage claims are subject to arbitration through a two-step analysis. First, the court found that the FAA represented a congressional declaration of a liberal federal policy favoring arbitration agreements and thus preempted California law which was in direct conflict with this policy. Second, the court interpreted the exception to the FAA narrowly to apply only to transportation workers. (This decision was important because it was in direct conflict with the federal Ninth Circuit’s view.) Thus, Sweeney’s wage claim was subject to the arbitration clause in his employment agreement under the FAA, and as a car salesman, he did not fall within the FAA’s narrow exception.

The Firstamerica case is welcome guidance for employers who are faced with the wage claim of an employee who has signed an arbitration agreement. Under Firstamerica , unless the employee is a transportation worker under the narrow exception of the FAA, the wage claim must be submitted to arbitration.