California Court Affirms Waiver of Arbitration Rights in Wage and Hour Class Action Case

Quick Hits

• The California Court of Appeal, Third Appellate District, affirmed that Sierra Pacific Industries waived its right to compel arbitration by engaging in years of litigation conduct inconsistent with an intent to arbitrate, including failing to timely produce signed arbitration agreements and participating in extensive class discovery involving employees subject to arbitration.
• The court applied the waiver standard articulated in Quach v. California Commerce Club, Inc., focusing on whether Sierra Pacific’s conduct was so inconsistent with an intent to enforce arbitration rights as to constitute intentional relinquishment, rather than relying on the previously used multifactor test from St. Agnes Medical Center v. PacifiCare of California.
• The appellate court dismissed Sierra Pacific’s appeal of the trial court’s order imposing evidentiary and issue sanctions, finding such orders are not directly appealable under California law.

Background

The underlying class action was initiated in October 2018 by a former Sierra Pacific employee, alleging multiple wage and hour violations on behalf of eight putative classes of current and former nonexempt employees. Although many employees had signed arbitration agreements, neither the named plaintiffs nor other class representatives had done so. Sierra Pacific initially failed to raise arbitration as an affirmative defense and resisted discovery requests for signed arbitration agreements, despite a court order compelling production in February 2020.

Over several years, Sierra Pacific produced only limited information, objected to discovery on privacy and burden grounds, and was sanctioned multiple times for noncompliance. After class certification in November 2022, Sierra Pacific produced over 3,000 signed arbitration agreements and moved to compel arbitration against absent class members who had signed such agreements. Plaintiffs opposed, arguing Sierra Pacific’s litigation conduct amounted to waiver of its arbitration rights and sought evidentiary and issue sanctions for the delayed production.

Key Holdings

Waiver of Arbitration Rights. The Court of Appeal, applying the waiver principles set forth in Quach, found clear and convincing evidence that Sierra Pacific intentionally relinquished its right to compel arbitration. The court emphasized that Sierra Pacific’s prolonged refusal to produce signed arbitration agreements, participation in class discovery and mediations involving signatory employees, and omission of arbitration as an affirmative defense in its operative answer were all inconsistent with an intent to arbitrate. The court rejected Sierra Pacific’s argument that its inability to move to compel arbitration prior to class certification precluded a finding of waiver, holding that waiver can be based on pre-certification conduct and that the totality of the party’s actions must be considered.

Discovery Sanctions. The trial court imposed evidentiary and issue sanctions against Sierra Pacific for its repeated failure to comply with discovery orders, specifically its refusal to produce signed arbitration agreements for nonexempt employees. The appellate court dismissed Sierra Pacific’s appeal of the sanctions order, holding that such orders are not directly appealable under California law and are not subject to ancillary appellate jurisdiction in connection with the appeal of the arbitration order.

Key Takeaways

Employers are encouraged to take care to exercise diligence in assessing how best to assert arbitration rights and comply with discovery obligations, as litigation conduct inconsistent with an intent to arbitrate may result in waiver of those rights.

The waiver inquiry under California law now focuses on whether a party’s conduct is so inconsistent with an intent to enforce arbitration rights as to constitute intentional relinquishment, without requiring a showing of prejudice to the opposing party.

Orders imposing evidentiary and issue sanctions for discovery violations are not directly appealable, underscoring the importance of compliance with court orders throughout litigation.

The decision reinforces the need for transparency and timely disclosure of arbitration agreements in wage and hour class actions, and clarifies that pre-certification conduct may be considered in determining waiver of arbitration rights.

Reviewing litigation and discovery practices in wage and hour class actions remains a critical step to ensure timely assertion and preservation of arbitration rights and strict compliance with discovery obligations. The appellate court’s decision in Sierra Pacific Industries Wage and Hour Cases serves as a cautionary reminder of the consequences of inconsistent litigation conduct and discovery noncompliance.

Ogletree Deakins’ California Class Action and PAGA Practice Group and Wage and Hour Practice Group will continue to monitor developments and will post updates on the California, Class Action, and Wage and Hour blogs as additional information becomes available.

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