08.01.2014
Court Requires Arbitration of Independent Contractor Misclassification Claim

On July 21, 2014, a California appellate court ordered a real estate agent of a brokerage firm to arbitrate his claim that he was improperly classified as an independent contractor and not an employee.  Galen v. Redfin Corporation. The court held that the Scott Galen’s claims for unpaid overtime, missed meal and rest periods, inaccurate and untimely wage statements, waiting time penalties, and unreimbursed business expenses were all arbitrable under a “Field Agent Independent Contractor Agreement” he signed with Redfin, which required arbitration of all disputes “arising out of or related to the agreement.”

The court concluded that the agent’s independent contractor misclassification claim was covered by the Agreement because it was the instrument that classified him as such and governed his relationship with Redfin.  The Agreement specifically included reference to the services Galen was to provide and the method by which he would be compensated, and expressly provided that Galen was responsible for the very kinds of business expenses that he sought reimbursement for in his lawsuit. The court distinguished a 2012 decision from another division in the same District Court of Appeal, entitled Elijahuan v. Superior Court, which denied arbitration of similar claims under an agreement requiring arbitration of disputes concerning the “application or interpretation of” the parties’ agreement. But even apart from this distinction, the Galen court considered the Elijahuan ruling to be insupportable under the Federal Arbitration Act (“FAA”) because it precluded the arbitration of clearly arbitrable claims.

The Independent Contractor Agreement also required that any arbitration take place in Redfin’s home state of Washington as opposed to California, where Galen’s services were performed. In opposing enforcement of the arbitration agreement, Galen contended that this provision was substantively unconscionable and rendered the agreement invalid because it placed too much of a burden on him in pursuing his claims. However, the court rejected that contention on the grounds that mere inconvenience or additional expense does not meet the test of “unreasonableness” for determining the enforceability of a “forum selection” clause of this nature.  The court also held that a provision requiring that the losing party pay the prevailing party’s attorneys’ fees did not “shock the conscience” and render the agreement invalid, merely because Redfin would not be entitled to recover its fees on some of Galen’s claims under the California Labor Code if it were found to be his employer.

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