California: Application of FAA to Intrastate Employers Clarified for Employee Arbitration Agreements


All Employers with CA Employees Subject to FAA


July 15, 2022




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In Evanskaas v. California Transit Inc., a California Court of Appeal stated that the Federal Arbitration Act (FAA) applies to businesses engaging in activities that have a substantial relation to interstate commerce. The question arose as to whether the employer’s business activities made them subject to the FAA. Specifically, the activities must substantially affect interstate commerce in the aggregate, even if their individual impact on interstate commerce is minimal.  


There, an employer’s business involved providing intrastate transportation for individuals protected by the Americans with Disabilities Act (ADA). The employer sought to enforce an employee’s arbitration agreement, which included a class action waiver. Class action waivers in arbitration agreements are prohibited in California. However, if an arbitration agreement is subject to the FAA, California’s rule does not apply because it is preempted by federal law. 


The court stated that the employer was engaging in activities that substantially impact interstate commerce because it provides paratransit services that public entities are required to provide under the ADA and are subject to federal control, is engaged in “inherently commercial activity” that makes use of highways and vehicles, and its services facilitated economic activity by the passengers. This case appears to have limited application as the court distinguished it as applying to “an arbitration agreement between an employer and an employee hired to provide commercial services required by federal law enacted by Congress under its commerce power.” However, employers with class action waivers are encouraged to review their arbitration agreements with legal counsel to confirm coverage by the FAA. 


Action Items 

  1. Review arbitration agreements with class action waivers with legal counsel for compliance. 
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance. 

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2022 ManagEase