Tesla Motion to Compel Arbitration Has Been Partially Granted and Partially Denied

Recently, in a case that has made headlines in the news, the electric vehicle manufacturer Tesla appealed from denial of its motion to compel arbitration of workplace race discrimination claims. The plaintiffs in the case had worked for Tesla at its Fremont-based factory through staffing agencies before joining the company as employees in 2017 and signing offer letters that specified start dates of August 2, 2017. The offer letters included an arbitration provision in which they agreed to arbitrate any disputes arising out of their employment with Tesla.

A few months later, one of the plaintiffs alleged he’d suffered a racially hostile work environment and asserted three causes of action under the California Fair Employment and Housing Act (FEHA), which is the state law that forbids workplace discrimination and harassment in California. The plaintiff had been offered employment, but he hadn’t signed the offer letter, and so the court denied the defendant’s motion to compel arbitration. The defendant then asked that class allegations in the plaintiff’s complaint be stricken because the plaintiff couldn’t adequately represent those workers that had agreed to arbitration by signing the offer letter.

Two other named plaintiffs were added. The complaint alleged that multiple Black coworkers faced repeated instances of being called racial slurs and facing other discrimination by their fellow coworkers as well as their supervisors. The plaintiffs were part of a subclass of workers that were initially employed by staffing agencies, but who became direct employees of Tesla.

Tesla moved to compel arbitration of the plaintiffs’ claims the following year. The plaintiffs argued that they weren’t required to arbitrate any claims based on Tesla’s actions before the start date specified in the offer letter. They also argued they were entitled to seek a public injunction in court since the arbitration provision prohibited it in arbitration proceedings.

The lower court partly granted Tesla’s petition. It reasoned that the arbitration clause required arbitration of disputes that arose after the start date. However it denied the motion to the extent that plaintiffs were asking for a public injunction.

On appeal, the Court of Appeals determined that the plain language of the arbitration provision indicated that it only covered claims that arose after direct, contractual employment began, as specified in the offer letters. The defendants also argued that the lower court had made a mistake in dividing the plaintiffs’ claims according to whether they were directly employed since the plaintiffs had asserted claims covering the whole time they were at Tesla rather than sequential hostile workplace incidents from before and after the period of their employment. The Court of Appeals pointed out that the defendants had required the trial court to do this because it had moved for arbitration.

The Court of Appeals also concluded that the lower court had appropriately refused to require the plaintiffs to arbitrate their request for a public injunction under FEHA. The defendant argued that a public injunction should only apply to acts directed to the entire public, not its employees, but didn’t have any case law or legislative history to back up that argument. The Court of Appeal explained that it was well-established that FEHA, as a workplace discrimination law, also served a public purpose. The arbitration provision in question in this case provided for resolution of covered disputes but forbade the arbitrator from granting nonindividual relief, such as a public injunction. That particular right of the plaintiffs’ was not waived in any forum.

The lower court’s order was affirmed.

Many businesses face complicated controversies in connection with arbitration agreements with their employees. If your company is involved in employment litigation involving a contentious arbitration clause, call experienced Los Angeles employment litigation attorney Ben Mehdian to develop a strong strategy for your case. Contact us at (844) 463-4342 or (310) 889-0706 or via our online form to schedule a consultation and protect your business.