Duane Morris Takeaway: This week’s episode features Duane Morris partner Jerry Maatman and associates Christian Palacios and Andrew Quay with their discussion of key ruling issued by the Ninth Circuit reversing a California federal judge’s order denying a motion to compel arbitration.
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Episode Transcript
Jerry Maatman: Hello, everyone, and thank you for being here again for the next episode of the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and joining me today are my colleagues, Christian and Andrew. Thank you both for being on our podcast.
Christian Palacios: Glad to be here, Jerry.
Andrew Quay: Thanks for having me, Jerry.
Jerry: Today, we’ll be discussing a very significant ruling by the Ninth Circuit that California employers, and really any employer using arbitration agreements, should be paying attention to. It’s the case of Cocom v. ABM Aviation. Christian, let’s start with the basics. What happened in this case?
Christian: So, this case involved a former airport janitor who filed a California wage and hour class action against his employer, ABM Aviation. Like many employers, ABM required employees to sign an arbitration agreement at the beginning of their employment. When the lawsuit was filed, ABM moved to compel arbitration. The district court denied the motion, finding the arbitration agreement procedurally and substantively unconscionable under California law, relying heavily on a 2024 California Court of Appeals decision called Cook v. University of Southern California. ABM appealed, and the Ninth Circuit reversed.
Jerry: So, this wasn’t about whether the arbitration agreement itself is enforceable under the Federal Arbitration Act. The question here was whether this particular agreement was so unfair under California law, that it couldn’t be enforced. Andrew, why did the district court think the agreement was unconscionable and therefore unenforceable?
Andrew: That’s right, Jerry. The district court focused on several provisions. First, it believed the agreement covered essentially every conceivable dispute between the employee and the company, and not just employment claims. Second, because it interpreted the agreement that broadly, it concluded the agreement lasted indefinitely. Third, it thought the agreement unfairly favored the employer because numerous affiliated entities and employees could invoke arbitration against the employee, while the employee supposedly had fewer reciprocal rights. Finally, the court concluded the agreement improperly waived certain forms of public injunctive relief; and looking at all those provisions together, the district court found the agreement was permeated with illegality and declined to even sever the problematic parts of it.
Jerry: Christian, the Ninth Circuit saw things differently. What was the outcome there?
Christian: It really did see things differently. The central issue was one of contract interpretation. The district court essentially read the phrase, including but not limited to, as making the arbitration agreement unlimited in scope. The Ninth Circuit disagreed, saying that’s not how California contract interpretation works. Instead, the Ninth Circuit applied the doctrine of Ejusdem generis, a long-standing principle that says when general language is followed by a list of specific examples, the general language is interpreted in light of those examples. Here, every specific example in the arbitration agreement involved employment-related disputes, wage claims, discrimination, retaliation, wrongful termination, labor code claims, and similar employment issues. Because of that, the court held the agreement should be interpreted as covering employment disputes, not unrelated personal disputes years after the employment ended.
Jerry: Andrew, that sure seems like a pretty important distinction from Cook. Could you explain that for our listeners?
Andrew: Probably the biggest takeaway here. So, in Cook, the arbitration agreement expressly stated that covered claims, “whether or not arising out of employment.” It also specifically listed non-employment tort claims. So, the California Court of Appeals imagines scenarios like a former employee needing to arbitrate a medical malpractice claim at a university hospital or a defamation claim years after employment ended. The Ninth Circuit said that’s simply not what ABM’s agreement did. ABM’s agreement focused exclusively on employment-related claims, and that distinction changed almost every aspect of the unconscionability analysis.
Jerry: It also addressed durational issues, too, didn’t it?
Christian: That’s right. Once the court concluded the agreement only applied to employment-related claims, the duration issue largely disappeared. Employment claims naturally stop accruing when employment ends, and applicable statutes of limitations eventually cut off any remaining claims. So, unlike the agreement in Cook, this agreement wasn’t truly perpetual.
Jerry: What about the concept of mutuality? That’s a concept employers hear about frequently in this space.
Andrew: Mutuality basically asks whether both sides are giving up similar rights. The employee argued that affiliates, officers, directors, employees, vendors, and clients could enforce the arbitration agreement against him, but he couldn’t as easily enforce it against them. Again, the Ninth Circuit said context matters here. Because the agreement only covered employment-related disputes, any claim involving those third parties would still have to arise out of the employment relationship. The Ninth Circuit explained that this is very different from forcing employees to arbitrate completely unrelated personal disputes with company affiliates years later.
Jerry: The Ninth Curcuit opinion also discusses PAGA waivers and the concept of public injunctive relief. What did the court do there?
Christian: Interestingly, the Ninth Circuit didn’t actually decide whether those provisions were enforceable. Instead, it assumed that even if those provisions were invalid under California law, they could simply be severed because of the agreement’s severability clause. That represents a fairly employer-friendly approach because courts sometimes refuse to enforce arbitration agreements if they believe illegal provisions infect the entire contract. Here, the Ninth Circuit concluded that wasn’t the case.
Jerry: Let’s turn to the practical side of this Ninth Circuit decision. If you’re advising employers in the wake of Cocom, what lessons should they take away from this ruling?
Andrew: The biggest lesson here is careful drafting. Employers should avoid language suggesting that arbitration extends to every conceivable dispute between the parties. The safest approach is to expressly limit covered claims to those arising out of employment or the employment relationship. That helps avoid the problems that doomed the agreements in Cook and similar California cases.
Christian: I’d add that employers should also revisit older arbitration agreements. Many agreements drafted years ago contain broad, any and all claims language that may have seemed harmless at the time but now creates litigation risk under California’s unconscionability doctrine. It’s worth reviewing those agreements to make sure the scope is appropriately limited and definitely include a well-written severability clause.
Jerry: Well, great insights from both of you, Andrew and Christian. The ABM decision by the Ninth Circuit is a great reminder to companies to review their arbitration agreements to ensure that they’re clearly limited to employment-related disputes and to update agreements to reflect evolving notions of California law, rather than relying upon forms drafted years ago. So, thanks so much for being here today with us, Christian and Andrew, and thank you to our listeners for tuning in.
Andrew: Thanks for having me, Jerry, and thank you, listeners.
Christian: Thanks, everyone, for listening.