A recent California Court of Appeal decision upheld an employer’s arbitration agreement, sending the employee’s individual claims to arbitration and dismissing the class claims. Important for employers is the court’s clear message that small drafting details can make a big difference in whether an arbitration agreement holds up to court scrutiny. 

In the case Tuufuli v. West Coast Dental Administrative Services (Tuufuli), a former employee filed suit against the employer, asserting both individual and class claims under various California labor and business laws. The employer moved to compel arbitration, seeking to enforce an agreement in which both parties expressly agreed that the Federal Arbitration Act (FAA) would govern. The FAA is a federal law governing the enforceability of arbitration agreements and providing a framework for resolving disputes outside the courtroom. The FAA generally applies to contracts involving interstate commerce. 

The lower court compelled arbitration of the employee’s individual claims but dismissed the class claims based on the agreement’s express ban on class, collective, or representative proceedings. In affirming the lower court’s ruling, the Court of Appeal emphasized several key points: 

• The FAA governed the arbitration agreement because it was “expressly agreed” to by both parties. This confirmed existing federal and California precedent that contracting parties may voluntarily agree to the application of the FAA and that evidence of interstate commerce is not the sole consideration for determining whether FAA coverage applies.  

• The dismissal of the class claims was warranted because the agreement was unambiguous in its prohibition of class, collective, or representative proceedings.  

• Evidence of substantial interstate activity is not necessary where the parties contractually agree that the FAA governs.  

The Tuufuli case highlights how important it is for employers to examine current arbitration agreements, making sure they meet both state and federal legal requirements to enhance their effectiveness as a risk management strategy.