CA Appellate Court Upholds FAA Governed Arbitration Agreement

In a significant win for the state's employers, a California appellate court recently found that express consent to be governed by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) in an employment contract is binding and enforceable. Notably, the appellate court's decision in Tuufuli v. West Coast Dental Administrative Services, LLC did not require an additional finding of proof of interstate commerce to enforce the agreement and apply the FAA.

Background

The decision arises out of a dispute filed in 2023 by an employee against West Coast Dental Administrative Services LLC (West Coast Dental), a company that manages a network of dental service facilities throughout California. The employee asserted eight individual and class claims for violations of various provisions of the California Labor and Business and Professions Codes. West Coast Dental moved to compel arbitration of the individual claims on the grounds that the employee had signed an employment contract containing an arbitration agreement that specifically stated that arbitrable claims arising out of the contract would be governed by the FAA and, to the extent permitted by the FAA, the laws of the State of California.

In support of its motion, West Coast Dental submitted a declaration by its human resources manager stating that it was a Delaware corporation, held offices in Washington until 2022, and sourced materials outside of California for its services. In her opposition, the employee argued that that West Coast Dental had failed to produce any evidence of interstate commerce and submitted a declaration stating that she worked exclusively in California and rarely interacted with anyone outside of California to perform her work. In its ruling granting the motion to compel arbitration, the trial court found, among other things, that the agreement to be governed by the FAA was valid and enforceable.

In upholding the trial court's decision, the appellate court rejected the employee's argument that the FAA is expressly exempt from being applied to any contract that does not involve interstate commerce. Citing a 1989 U.S. Supreme Court decision, the California appellate court recognized that arbitration under the FAA is a matter of consent, not coercion, and the parties are generally free to structure their arbitration agreement as they see fit. Additionally, the appellate court also distinguished another U.S. Supreme Court decision, Allied-Bruce Terminix Cos. V. Dobson, on the grounds that that case did not require that the FAA only apply to contracts involving interstate commerce, and clarified that the case did not consider whether the FAA may apply where the parties expressly agreed that it would, even if the underlying contract might not involve interstate commerce.

Ultimately, the appellate court found that the parties' express agreement to be governed by the FAA was sufficient to bind them, and there was no need to determine whether the FAA also applied because the agreement involved interstate commerce.

Next Steps for Employers

Although an appeal of this decision to the state's Supreme Court seems likely, for now, this ruling indicates a willingness by California courts to recognize and enforce clearly stated agreements for FAA governance, where appropriate and allowed by law.

If you have questions regarding the applicability of the FAA to your company and its workplace policies, please reach out to Julie, or another member of our employment, benefits & immigration team. In the meantime, DWT will continue to monitor all arbitration-related issues and provide updates as developments arise. To stay informed, sign up for our alerts.