Elijahjuan v. Superior Court

210 Cal. App. 4th 15, 147 Cal. Rptr. 3d 857, 77 Cal. Comp. Cases 968, 2012 Cal. App. LEXIS 1080

• Court: California Court of Appeal
• Decided: October 17, 2012
• Docket: No. B234794
• Status: Published

Opinions

Opinion

FLIER, J.

The difference between an employee and an independent contractor is significant if for no other reason than employees enjoy benefits not afforded independent contractors. Here, petitioners alleged that real parties in interest misclassified them as independent contractors when they were employees. That allegation underlies every cause of action in this lawsuit.

The sole substantive issue on appeal is whether the parties agreed to arbitrate their dispute. We conclude that the dispute falls outside the arbitration provision, which applies only to disputes regarding the “application or interpretation” of the parties’ contracts. The dispute in this case is unrelated to the substance of the parties’ contractual obligations, and instead depends on extracontractual legal obligations an employer owes its employees, but does not owe its independent contractors. The trial court granted real parties in interest’s motion to compel arbitration. We treat this appeal from a nonappealable order as a petition for writ of mandate, and grant the petition.

FACTUAL AND PROCEDURAL BACKGROUND

Hireem Elijahjuan, Dave Van Huynh, Julio Hernandez, and James Love filed a first amended complaint (FAC) on their own behalf and on behalf of all others similarly situated (petitioners). Mike Campbell & Associates, Ltd., and Mike Campbell & Associates Logistics, LLC, were named as defendants (collectively real parties in interest). According to the FAC, each petitioner and each member of the proposed class was misclassified as an independent contractor instead of an employee. As a result, real parties in interest committed numerous violations of the Labor Code,¹ violations of the Unfair Business Practices Act (Bus. & Prof. Code, § 17200 et seq.), and negligent misrepresentations.²

Real parties in interest moved to compel arbitration, attaching agreements containing dispute resolution provisions signed by Van Huynh and Hernandez (Agreements). Petitioners do not challenge the trial court’s finding that petitioners were bound by the dispute resolution provision in the Agreements, which provided:

“11. DISPUTE RESOLUTION

“Having entered into this Agreement in good faith, the Parties agree that the terms and procedures set forth herein shall be controlling if a dispute arises with regard to its application or interpretation, [f] . . . [][]

“11.2 Arbitration. If after the expiration of the thirty (30) day period, a dispute is not resolved voluntarily the Parties shall submit the matter for final and binding arbitration .... The award of the arbitrator may be enforced in any court of competent jurisdiction. H] . . . [][]

“11.4 Discretion of Arbitrator.

“(a) The arbitrator shall base the award on the terms of this Agreement, federal transportation law, including existing judicial and administrative precedence, and by the arbitration law of the Federal Arbitration Act, title 9 U.S. Code. The arbitrator shall apply each in the order of precedence with the former having primary control.” (Italics added.)

In opposition to the motion to compel arbitration, petitioners argued, among other things, that their claims of misclassification did not arise out of or require interpretation of the Agreements. Real parties in interest countered that the Agreements “set forth all of the terms and conditions of the business relationship between [petitioners] and [real parties in interest] including [petitioners’] ability to subcontract work and their ability to contract with other companies during the term of the agreements.” The trial court granted the motion to compel arbitration of all claims except for the alleged violations of the Unfair Business Practices Act, which the court severed and stayed. The court rejected petitioners’ request for classwide arbitration.

DISCUSSION

1. Appealability

An order compelling arbitration is not appealable. (Muao v. Grosvenor Properties, Ltd. (2002) 99 Cal.App.4th 1085, 1088-1089 [122 Cal.Rptr.2d 131].) To overcome this obstacle, petitioners rely on the “death knell” doctrine, which renders appealable orders that “effectively terminate class claims but permit individual claims to continue.” (In re Baycol Cases I & II (2011) 51 Cal.4th 751, 754 [122 Cal.Rptr.3d 153, 248 P.3d 681] (Baycol).) Another case has used the death knell doctrine to consider an appeal of an order compelling the individual arbitration of a class claim. (See Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1288 [90 Cal.Rptr.3d 539] (Franco).)

Franco, however, is distinguishable from this case because the order compelling arbitration in Franco terminated all class claims. The Franco court “effectively limitfed] the arbitration to [the] plaintiffs claims.” (Franco, supra, 171 Cal.App.4th at p. 1282, italics omitted.) In contrast, here the court stayed litigation on the alleged violations of the Unfair Business Practices Act. The court therefore did not effectively terminate class claims, a prerequisite for the death knell doctrine. As Baycol, supra, 51 Cal.4th at pages 757-758, explained: “[0]rders that only limit the scope of a class or the number of claims available to it are not similarly tantamount to dismissal and do not qualify for immediate appeal under the death knell doctrine; only an order that entirely terminates class claims is appealable.”

“An appellate court has discretion to treat a purported appeal from a nonappealable order as a petition for writ of mandate . . . .” (H. D. Amaiz, Ltd. v. County of San Joaquin (2002) 96 Cal.App.4th 1357, 1366-1367 [118 Cal.Rptr.2d 71].) We conclude that issuance of the writ is warranted in this unusual case. The issue of arbitrability in this case is one of law and has been fully briefed. (See Olson v. Cory (1983) 35 Cal.3d 390, 401 [197 Cal.Rptr. 843, 673 P.2d 720].) Additionally, the record is adequate to consider the issues, and there is no indication the trial court would be more than a nominal party. (H. D. Arnaiz, Ltd., supra, at p. 1367.) If we were to dismiss the appeal, the ultimate reversal of the order would be inevitable, and would follow the substantial expense of completing an arbitration. (Branham v. State Farm Mut. Auto. Ins. Co. (1975) 48 Cal.App.3d 27, 32-33 [121 Cal.Rptr. 304] [treating an order compelling arbitration as a petition for writ of mandate]; see Schultz v. Regents of University of California (1984) 160 Cal.App.3d 768, 788 [206 Cal.Rptr. 910] [treating purported appeal from denial of summary judgment as petition for writ of mandate].) To dismiss the appeal and require the parties to proceed to arbitration of nonarbitral claims would be “ ‘ “unnecessarily dilatory and circuitous.” ’ [Citation.]”³ (Olson v. Cory, supra, at p. 401.)

2. Arbitrability

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97 [99 Cal.Rptr.2d 745, 6 P.3d 669]; see Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, 498 [145 Cal.Rptr.3d 432].) “The Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) incorporates a strong federal policy of enforcing arbitration agreements, including agreements to arbitrate statutory rights.” (Armendariz, at pp. 96-97.) However, the preference for arbitration extends only to those disputes the parties agree to arbitrate. {Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653 [35 Cal.Rptr.2d 800]; see AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 648 [89 L.Ed.2d 648, 106 S.Ct. 1415].) In determining contractual arbitrability, the threshold issue is whether the parties agreed to arbitrate their dispute— i.e., whether the contract included or excluded the dispute from its arbitration clause. {Engineers & Architects Assn., at p. 653.)

“The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Civ. Code, § 1636.) If contractual language is clear and explicit, it governs. (Civ. Code, § 1638.)” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 [10 Cal.Rptr.2d 538, 833 P.2d 545].) Because the language of the arbitration provision was not in dispute and no conflicting evidence regarding its meaning was presented, we consider its meaning de novo. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 707 [111 Cal.Rptr.3d 876].)

The crucial issue is whether the arbitration provision—which applies to any dispute that “arises with regard to [the Agreements’] application or interpretation”—includes the alleged misclassification of petitioners as independent contractors, the cornerstone of each cause of action in the FAC. We conclude that the current dispute falls outside the ambit of the arbitration provision.

Petitioners’ lawsuit does not concern the application or interpretation of the Agreements, but instead seeks to enforce rights arising under the Labor Code benefiting employees but not independent contractors. No allegation in the FAC is based on rights afforded petitioners under the terms of the Agreements. The parties’ dispute therefore cannot be characterized as regarding the application or interpretation of the Agreements.

Narayan v. EGL, Inc. (9th Cir. 2010) 616 F.3d 895, 899 (Narayan) explains the distinction between rights arising under a contract and those arising under a Labor Code statute. The issue in Narayan was whether a contractual choice of law provision requiring use of Texas law applied to alleged California Labor Code violations. The appellate court explained that the alleged Labor Code violations did not arise out of the contract, reasoning that the plaintiffs’ claims for relief were dependent on whether they were employees (as opposed to independent contractors), which in turn was dependent “on the definition that the otherwise governing law—not the parties—gives to the term ‘employee.’ ” (Ibid.) The court further explained that although the contracts were relevant, the Labor Code claims did not arise out of them, stating: “While the contracts will likely be used as evidence to prove or disprove the statutory claims, the claims do not arise out of the contract, involve the interpretation of any contract terms, or otherwise require there to be a contract.” (Ibid.)

Although Narayan involved a choice of law provision, its reasoning is applicable here. As in Narayan, petitioners’ claims do not arise out of the Agreements. As in Narayan, although the Agreements may be relevant to prove or disprove the alleged misclassification—as they describe petitioners as independent contractors—their materiality does not show the claims arise out of the Agreements. The critical dispute in this case is not whether the Agreements describe petitioners as independent contractors—they clearly do—but whether petitioners were in fact independent contractors under the applicable legal principles.

A portion of real parties in interest’s brief actually makes this clear. Real parties in interest argue that to assess whether a worker is an employee or independent contractor, the court must consider “ ‘whether the worker is engaged in a distinct occupation or business, the skill required in the particular occupation, whether the employer or the worker supplies the tools and the place of work, the length of time for which the services are to be performed, whether the worker is paid by time or by the job, whether the work is a part of the regular business of the employer, and the kind of relationship the parties believe they are creating.’ ” (Quoting Bowman v. Wyatt (2010) 186 Cal.App.4th 286, 303 [111 Cal.Rptr.3d 787].) The assessment of these factors is extracontractual and involves neither the application nor the interpretation of the Agreements. It involves consideration of petitioners’ actual work. Moreover, even though the Agreements state that petitioners are independent contractors, “[t]he label placed by the parties on their relationship is not dispositive . . . .” (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 349 [256 Cal.Rptr. 543, 769 P.2d 399].)

For these reasons, the court in Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193 [142 Cal.Rptr.3d 312] (Hoover) held that statutory Labor Code claims were outside the scope of the arbitration provision that required the parties to arbitrate disputes “ ‘arising out of or relating to this contract’ ” and “ ‘all disputes, claims, questions, and controversies of any kind or nature arising out of or relating to this contract.’ ” (Id. at p. 1208.) The court explained that the arbitration provision—which is even broader than the one in the present case—did not encompass statutory Labor Code claims. (Ibid.) The contract “does not reflect an agreement to arbitrate [the plaintiff’s] claims, as asserted under state law, rather than her claims under the contract.”⁴ (206 Cal.App.4th at p. 1208.)

The distinction between contractual claims and statutory claims has been explained by the United States Supreme Court in the context of determining whether a collective bargaining agreement required arbitration of a claim under the Americans with Disabilities Act of 1990 (ADA; 42 U.S.C.S. § 12101 et seq.). (Wright v. Universal Maritime Service Corp. (1998) 525 U.S. 70 [142 L.Ed.2d 361, 119 S.Ct. 391].) Although there is a presumption of arbitrability under collective bargaining agreements, contractual language requiring the arbitration of “disputes related to the agreement” did not include a claim under the ADA. {Wright, at pp. 78, 81-82.) A cause of action for discrimination arose out of the ADA, not the parties’ collective bargaining agreement. (525 U.S. at p. 79.) The plaintiff’s rights under the ADA were “distinct” from any right under the parties’ agreement. (525 U.S. at p. 79.)

Similarly, here petitioners’ rights under the Labor Code are distinct from their contractual rights under the Agreements. The ultimate issue this lawsuit must determine is whether real parties in interest satisfied the requirements of the Labor Code, not how the parties described their relationship in the Agreements. The parties’ own label does not control whether petitioners are independent contractors. (S. G. Borello & Sons, Inc. v. Department of Industrial Relations, supra, 48 Cal.3d at p. 349.) The agreement to arbitrate disputes concerning the application and interpretation of the Agreements therefore does not include the claims in this lawsuit.

This analysis is confirmed by section 11.4 of the Agreements, which limits the arbitrator to basing his or her award on “the terms of this Agreement, federal transportation law, . . . and ... the arbitration law of the Federal Arbitration Act” and thereby excludes the only law relevant to the current dispute. Under the terms of the Agreements, the arbitrator is not empowered to apply California law to analyze the Labor Code claims. Although the Agreements also specify that it “shall be interpreted in accordance with the laws of the State of California,” petitioners’ Labor Code claims do not involve the interpretation of the Agreements. A construction that requires an arbitrator to consider petitioners’ claims under federal transportation law and the Federal Arbitration Act is unpersuasive as even real parties in interest apply California law to distinguish between an employee and an independent contractor.

Neither Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 681, footnote 2, 686 [99 Cal.Rptr.2d 809] (Coast) nor Berman v. Dean Witter & Co., Inc. (1975) 44 Cal.App.3d 999, 1003 [119 Cal.Rptr. 130] (Berman) compels a different conclusion. Coast stands for the unremarkable proposition that a tort claim arising out of a contract falls within a contractual arbitration provision covering “ ‘[a]ny problem or dispute arising under this Agreement and/or concerning the terms of this Agreement.’ ” (Coast, supra, at p. 681, fn. 2, italics omitted.) The gravamen of each offense in Coast was that the rates specified in the contract were too low, and the claims therefore arose under the agreement. (Id. at pp. 682, 684-685.) The set rates were based only on the agreement, not on a state or federal law. Similarly, in Berman, the court held that “[t]he phrase ‘any controversy . . . arising out of or relating to this contract . . .’is certainly broad enough to embrace tort as well as contractual liabilities so long as they have their roots in the relationship between the parties which was created by the contract.” (Berman, at p. 1003.)

While the tort claims in Berman and Coast were rooted in the contract, here petitioners’ statutory claims are not. The parties’ Agreements did not encompass any claims arising out of the contract, let alone any claims arising out of its application or interpretation. More importantly, the Labor Code claims do not arise out of the contract but instead are distinct from rights under the Agreements. The arbitration provision in this case is much more narrow and obviously differs from one encompassing “ ‘any and all employment-related disputes.’ ” (Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 495 [128 Cal.Rptr.3d 854].)⁵ In short, because the parties did not agree to arbitrate the dispute in this case, the order compelling arbitration must be reversed.

DISPOSITION

Let a peremptory writ of mandate issue commanding the trial court to vacate its order compelling arbitration and issue a new order denying real parties in interest’s motion to compel arbitration. Petitioners are entitled to costs in this proceeding.

Rubin, Acting P. J., concurred.

1 Undesignated statutory citations are to the Labor Code unless otherwise noted.

Specifically, petitioners claim real parties in interest failed to reimburse them for business expenses (§ 2802), unlawfully deducted part of their wages (§§ 221, 223, 400-410), unlawfully coerced purchases (§ 450 et seq.), failed to keep accurate payroll records and properly itemize wage statements (§ 226), and failed to pay wages as earned upon termination or resignation (§§ 201-204).

2 The trial court granted a demurrer to petitioners’ causes of action for fraud and conversion. After the petition to compel was granted and after the notice of appeal was filed, petitioners filed a second amended complaint. The parties do not argue that the second amended complaint is relevant to the proceeding in this court and we do not consider it.

3 Real parties in interest’s motion to dismiss the appeal is denied.

4 We do not rely on Hoover’s alternate holding that the Federal Arbitration Act (9 U.S.C. § 1 et seq.) was inapplicable because the parties’ contracts did not involve interstate commerce. (Hoover, supra, 206 Cal.App.4th at pp. 1207-1208.) That Hoover had alternate holdings does not render one dicta. (Cal. Emp. etc. Com. v. Municipal Ct. (1944) 62 Cal.App.2d 781, 787 [145 P.2d 361] [“ ‘It is well settled that where two independent reasons are given for a decision, neither one is to be considered mere dictum, since there is no more reason for calling one ground the real basis of the decision than the other. The ruling on both grounds is the judgment of the court and each is of equal validity.’ [Citations.]”].)

5 Because we conclude the order compelling arbitration must be vacated, we need not consider the parties’ remaining arguments.