In his claims before the Division of Labor Standards and Enforcement (“DLSE”), driver Sangam Patel (“Patel”) seeks recovery of unpaid wages, overtime pay, vacation pay, meal and rest break premiums, and unpaid business expenses allegedly owed by Uber. Uber petitioned to compel arbitration of Patel’s (“Patel”) claims under the FAA.The Labor Code provides a right to bring an action to collect wages notwithstanding the existence of an arbitration agreement. Cal. Lab. Code § 229. If the FAA applies, a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA applies to any “contract evidencing a transaction involving commerce” that contains an arbitration provision.

Discover Bank established a limited set of circumstances under which arbitration agreements could be found unconscionable. Only cases involving “a consumer contract of adhesion in a setting in which disputes between the parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money” qualified under that test.Both the district court and the Ninth Circuit rejected AT&T’s argument that the Discover Bank rule was preempted by the Federal Arbitration Act (“FAA”), 9 U.S.C. §2. That statute makes agreements to arbitrate “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Unconscionability is, of course, a ground for the revocation of any contract, not just agreements to arbitrate, and Discover Bank expressly made clear that its holding likewise “applies equally to class action litigation waivers in contracts without arbitration agreements as it does to class arbitration waivers in contracts with such agreements.”The Supreme Court of the United States granted certiorari and reversed the lower courts by a 5-4 vote.

The Southern District in Whyte v. WeWork Cos., Inc., No. 20-cv-1800 (CM) (S.D.N.Y. June 11, 2020) explicitly followed Judge Denise Cote’s reasoning in Latif and granted the employer’s motion to compel arbitration. Under the FAA, grounds for setting aside an agreement to arbitrate are limited to those that “exist in law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Like in Latif, the Whyte court focused on the text of the FAA’s savings clause, which the Supreme Court has interpreted to mean that agreements to arbitrate can be invalidated only by “generally applicable contract defenses, such as fraud, duress, or unconscionability.”

The Amazon brief contrasted the narrow language of the Section 1 residual clause that focuses on whether the workers are “engaged in . . . interstate commerce” with Section 2 of the FAA the governs that threshold application of the FAA and states a “contract evidencing a transaction involving commerce.” 9 U.S.C. § 2 (emphasis added) (Responsive Brief at 7). Citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001), the supplemental brief pointed out that the language of Section 2 “signals an intent to exercise Congress’ commerce power to the full”, while the Section 1 language “engaged in commerce [has] a more limited reach.”

In a 6-3 decision in DIRECTV, Inc. v. Imburgia et al., 577 U.S. ____ (2015),1 the United States Supreme Court reversed the California Court of Appeal and held that state courts must enforce arbitration clauses even if a class action waiver in an arbitration clause would be unenforceable under state law, because the Federal Arbitration Act pre-empts conflicting state laws. Under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2, arbitration clauses are enforceable unless they can be revoked for the same legal or equitable reasons that allow any contract to be revoked. See 9 U.S.C. § 2.

Under the Federal Arbitration Act an arbitration agreement is “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. §2. The Federal Arbitration Act reflects a “liberal federal policy favoring arbitration.”

It is not inconceivable to think that California may follow suit with a similar bill, or even a more expansive one.Invalidating any agreement required as a condition of employment. The FAA provides that arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. This provision “establishes an equal-treatment principal: A court may invalidate an arbitration agreement based on generally applicable contract defenses,” but not based on a rule “discriminating on its face against arbitration” or “disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”

They are not relevantly exclusive either. FAA § 202 provides that“[a]n arbitration agreement … arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a … contract, or agreement described in section 2 of this title [i.e., 9 U.S.C. § 2] falls under the Convention.”In turn, 9 U.S.C. § 2 provides that“[a] written provision in … a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract …, … or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

First, the Court noted that the FAA requires courts to enforce arbitration agreements as written, including with whom the parties choose to arbitrate their disputes (e.g.,the employer and the aggrieved employee) and the rules governing the dispute (e.g., individualized proceedings, rather than class or collective proceedings). Contrary to the employees’ arguments, the Court found that the FAA’s savings clause – which allows courts to invalidate arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” 9 U.S.C. Section 2, such as fraud, duress, or unconscionability – does not invalidate the class action waivers at issue because the savings clause does not include defenses that interfere with the “fundamental attributes of arbitration,” in this case, the parties’ agreement to proceed with individual arbitration instead of class or collective proceedings. Second, the Court rejected the employees’ argument that the Act overrides the FAA’s mandate to treat arbitration agreements as “valid, irrevocable, and enforceable.”

See AT&T Mobility, 563 U.S. at 339. FAA Section 2 is the “primary substantive provision of the Act,” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), and it renders a written provision in a contract to settle a controversy by arbitration “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The Supreme Court has explained that FAA Section 2 represents “a congressional declaration of a liberal federal policy favoring arbitration agreements.”