Tesla Trounced! Court Shreds Forced Arbitration Agreement & Reaffirms Workers’ Right to Fight for the Public Good Under FEHA in Racial Discrimination Case

Jane Mackie, Senior Associate Attorney, Bryan Schwartz Law

For the first time, a California appellate court recently held that the state’s Fair Employment and Housing Act (FEHA) authorizes plaintiffs to seek public injunctions, and any agreement purporting to waive that agreement is invalid.

Bryan Schwartz Law and the California Civil Rights Group filed a class action, Vaughn v. Tesla, Inc., after Black workers at Tesla’s Fremont factory experienced severe, pervasive harassment based on their race. Strikingly, among other abuses, these workers’ co-workers and supervisors regularly call them the N-word and other overt racial slurs, and the workers see racist graffiti throughout the factory, including Nazi swastikas, lynching nooses, and other horrific images.

The recent ruling under FEHA arose after Tesla appealed a commonsense trial court decision interpreting an arbitration agreement signed by some Black workers, including Plaintiffs Monica Chatman and Evie Hall.  They worked for Tesla as staffing agency hires before Tesla hired them directly for their “first day of employment,” according to their employment agreements. Those agreements also stated that any claims or disputes “arising from or relating to your employment” are subject to mandatory arbitration. Tesla argued that the arbitration agreement applied to the earlier time when Chatman and Hall worked at the Fremont plant through staffing agencies, because that period “related to” their post-signing employment. The trial court rejected the argument, but Tesla appealed as a stall tactic. The Court of Appeal affirmed the trial court, agreeing that the arbitration agreement did not apply to the period before it was signed.

Black workers at Tesla’s Fremont factory experienced racial discrimination and were subjected to racial slurs.

Significantly, the Court of Appeal also agreed with the trial court that Plaintiffs’ claim for a public injunction under FEHA could not be stripped by an arbitration agreement. The arbitration agreement provides that an arbitrator cannot “award relief to a group or class of employees.” It would bar Plaintiffs from seeking a public injunction in any forum, as the trial court recognized and the appellate court affirmed.

To avoid the conclusion that the agreement’s class provision is an invalid waiver of the substantive right to a public injunction, Tesla argued that FEHA does not allow public injunctions, and that FEHA is preempted under the Federal Arbitration Act (FAA) if it allows public injunctions despite an arbitration agreement’s prohibition. Then, at oral argument, Tesla argued that Chatman and Hall could be forced to arbitrate their claims for a public injunction, though the provision purported to prevent them from seeking a public injunction in any forum.

The Court of Appeal rejected these arguments.

As a threshold matter, the court found that FEHA authorizes public injunctions: a public injunction under FEHA would benefit the general public, and FEHA’s purpose in prohibiting racial discrimination and harassment inures to the benefit of the public at large. “An injunction against further employment discrimination by Defendant [Tesla] would inure to the benefit of not only current Tesla employees, but to the benefit of their families and their communities, as well as to the benefit of future Tesla applicants and employees.” Therefore, the court concluded, FEHA provides relief in the form of public injunctions against employers such as Tesla, and an aggrieved person has non-waivable standing to seek such an injunction.

Tesla’s forced arbitration agreement with employees was shredded by the court.

The court addressed Tesla’s argument that the FAA preempts California law on public injunctions, requiring arbitration here. Whether an arbitration agreement is enforceable is a question of state contract law. Under Civil Code section 3513, parties cannot write a contract which contravenes a law that exists for the public good. Therefore, the court held the FAA does not preempt California law on public injunctions, and that the holding of SCOTUS in Viking River Cruises, Inc. v. Moriana is not to the contrary.

This decision expressly reaffirms that workers can fight for the public good under FEHA because the public suffers when employer discrimination and harassment go unchecked. California law ensures that workers can seek to protect the public from discrimination and harassment through injunctive relief, even if other types of claims are subject to mandatory individual arbitration.

Michael Rubin of Altshuler Berzon argued for Plaintiff-Appellees.