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Class action charging Tesla with racial discrimination will proceed in California

The appellate court decision means workers can make Tesla face class action discrimination claims rather than hiding behind "overbroad" arbitration agreements.

SAN FRANCISCO (CN) — Tesla must face a class action alleging racial discrimination against Black workers at its Fremont factory in California — after losing an appeal of a decision to deny its ability to compel arbitrating workers' claims.

The outcome stems from an appeals court panel upholding a county court’s ruling that the company can’t force employees to arbitrate discrimination allegations only within the period they worked through a staffing agency.

The First Appellate District panel’s ruling released Wednesday upholds Alameda County Superior Court Judge Evelio Grillo’s decision to exclude from arbitration claims based on conduct occurring during periods plaintiffs were employed by staffing agencies, rather than directly by Tesla. The panel concluded that Grillo properly declined to mandate arbitration of plaintiffs’ request for a public injunction, and rejected Tesla’s primary contentions. 

Tesla appealed the denial of its motion to compel arbitration of discrimination claims brought by Monica Chatman and Evie Hall. The plaintiffs worked for Tesla through staffing agencies before signing employment letters in July 2017 and alleged discrimination occurred before and after the letters were signed.

In November 2017, Marcus Vaughn filed a complaint alleging he suffered a racially hostile work environment at the Fremont factory and he never signed an offer letter or arbitration agreement with Tesla. For that reason, the trial court denied Tesla's motion to compel arbitration of Vaughn’s claims. Joining Vaughn’s complaint in 2017, Chatman and Hall seek to represent a subclass of workers who worked for staffing agencies for a portion of the time they worked at the company's factory, seeking relief for discrimination claims.

Tesla argued in 2021 that the plaintiffs’ claims distinguished between the time they were employed by staffing companies and the time they were directly employed, and argued that the Arbitration Provision mandated arbitration. Tesla also argued plaintiffs could not seek a public injunction under the Fair Employment and Housing Act. 

The plaintiffs argued that they were not obligated to arbitrate claims based on conduct before employment began in 2017, and that they had the right to seek a public injunction in court outside of arbitration.

Grillo handed down a mixed ruling, saying the arbitration clauses require plaintiffs to arbitrate disputes that arise on or after August 2017. He also concluded, “any claims based on alleged wrongs before (8/2/17) are not within the temporal scope of the agreements.” The trial court also denied the motion to compel arbitration to the extent that Plaintiffs sought a public injunction.

The panel said in a ruling by Justice Mark Simons — with Justices Gordon Burns and Rebacca Wiseman concurring — that injunctions sought under the Fair Employment and Housing Act may be considered “public injunctions.” The ruling added that the Federal Arbitration Act does not preempt the California rule prohibiting waiver of the right to seek such injunctions.

“It is clear that ‘employment’ as used throughout the Arbitration Provision and specifically in the phrase ‘arising from or relating to your employment’ refers to the period of direct,contractual employment, not prior periods during which plaintiffs were employed by staffing agencies and assigned to work at defendant’s factory,” the panel said. “Defendant is mistaken in suggesting the Arbitration Provision must be applied to pre-contract disputes in order to give meaning to the inclusion of the words ‘relating to’ in addition to ‘arising from.’” They said Tesla’s proposed wording lacks support and would expand application of the Arbitration Provision “beyond the reasonable expectations of the parties.”

Plaintiffs seek a public injunction to prevent Tesla from further violations of the FEHA with race discrimination and harassment against Black workers. The prayer for relief asks for implementation of policies to prevent and correct race harassment, mandatory training regarding harassment for all employees and a public declaration that Tesla’s “widely- known racist practices” contravene California law.

The panel said Tesla’s claim that the trial court erred because the Act “does not authorize plaintiffs to obtain public injunctions” failed, as did their claim that the FAA preempts California’s rule against contractual waivers of the right to seek a public injunction. 

“We reject Defendant’s argument that requests for injunctive relief under the statues … may have ‘the primary purpose and effect of’ prohibiting unlawful acts that threaten future injury to the general public but an injunction sought under FEHA may not,” the panel wrote. 

The plaintiffs’ attorney Bryan Schwartz said in an interview that this means the plaintiffs can proceed with a class action and seek a public injunction. The panel wrote that any conflict between PAGA and the FAA “derives from the statute’s built-in mechanism of claim joinder,” which permits joinder of the claims of a multitude of other employees to the individual plaintiff’s claims. 

“A public injunction claim presents no such possibility. Whether adjudicated in a judicial forum or arbitration, a request for a public injunction is based on the evidence presented in support of the plaintiff’s claims and does not require adjudication of the claims of other parties,” the panel added. 

Schwartz said the decision makes clear that Tesla cannot compel individuals to arbitrate claims not covered by arbitration agreements, and protects them from having their statutory rights stripped through an “overbroad arbitration agreement.”

He said his clients hope to make an example of Tesla to other corporations, through this case. The electric vehicle giant has faced many lawsuits alleging discrimination at the Fremont factory for years, including from the California Department of Fair Employment and Housing. Schwartz alluded to the claims in that case of Black workers facing discriminatory treatment, hearing and seeing slurs and finding racist messages "on the walls."

“We can now start to litigate the real issues at stake in this case, which are whether this mega corporation can permit rampant racial harassment unchecked at its factory,” Schwartz said. “Tesla for years has sought to avoid responsibility for their egregious, widespread and despicable racism at the Fremont factory. This case has been pending for more than five years, and they stalled the majority of that time by making frivolous arguments about arbitration agreements instead of confronting head on that racial epithets are widely heard throughout the Fremont factory."

“It’s time for Tesla to face the music,” he added. 

Lawyers for Tesla did not respond to a request for comment before deadline. 

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