Tesla Workers’ WARN Act Labor Suit Heads to Arbitration

After filing suit in June, the two Sparks, Nevada Tesla factory employees suing their former employer over improper layoff procedures will likely have to arbitrate their claims individually. The report and recommendation authored by Magistrate Judge Susan Hightower said that the workers entered into a binding arbitration agreement with Tesla, curtailing their run in court.

The lawsuit came after Tesla CEO Elon Musk warned of, then the company moved ahead with, layoffs this summer. The Western District of Texas class action claimed that Tesla failed to comply with the Worker Adjustment Retraining Notification (WARN) Act by failing to provide impacted workers with 60-day written notice.

In July, Tesla moved to dismiss or to compel arbitration. Substantively, the motion said that the layoffs are part of a periodic “right-sizing” of its workforce when the company discharges low performing employees. Further, Tesla claimed it always ensures WARN Act compliance and that layoffs complained of were not a statute-triggering event.

Reaching only the arbitration issue, Judge Hightower opined that “the Court’s analysis begins and ends with the determination that the parties have entered into a valid delegation clause.” Thus, with the threshold question, that arbitrability was delegated to an arbitrator, answered, the court ended its inquiry.

Even the plaintiffs’ allegations of unconscionability were left to arbitration. “Under California law, Plaintiffs’ unconscionability challenges are challenges to enforcement of the Employment Agreements, not their formation. Plaintiffs’ challenges therefore must be resolved by an arbitrator.”

If the report and recommendation is adopted by the district judge, the plaintiffs can appeal or proceed to individual arbitration. They are represented by Herrmann Law PLLC and Lichten & Liss-Riordan P.C. and Tesla by Morgan, Lewis & Bockius LLP.