The Best Defense…Is a Good Arbitration Agreement!

In the last edition of Employment Awareness, we briefly touched on a recently-published case upholding arbitration agreements. However, having discussed the case with several of our clients, we thought a deeper dive into the court’s holding would be helpful to our wider audience. As an added bonus, it gives us the opportunity to share one of those all-too-rare feel-good moments when the California courts side with the employer.

In Diaz v. Sohnen Enterprises¹, the employer, Sohnen, notified its employees that it was adopting a new internal dispute resolution policy requiring arbitration. Sohnen provided all of its employees with copies of the arbitration agreement, and informed them that continued employment would be considered acceptance of the agreement’s terms, even if the employee refused to sign it. Several days later, Diaz informed Sohnen’s HR department that she did not wish to sign the agreement. She was again told that the arbitration agreement was a condition of her employment and that continuing to work constituted acceptance of the agreement. About four days later, Diaz served Sohnen with a lawsuit alleging discrimination claims, along with a letter expressly rejecting the arbitration agreement.

The trial court denied Sohnen’s motion to compel arbitration, concluding that the arbitration agreement was a “take-it or leave-it” contract of adhesion and that “there was no meeting of the minds.” A divided Court of Appeal reversed, concluding that Diaz’s continued employment was evidence of consent to arbitration. The Court ruled that even when an employee does not sign an arbitration agreement (and even expressly objects to it), if employment continues, arbitration is required under the principle of "acceptance by conduct."

So what does Sohnen’s victory teach other employers? There are a few good lessons here:

• First, make your arbitration agreements mandatory: At the risk of stating the obvious, a well-drafted mandatory arbitration agreement should be part of every employer’s onboarding toolkit.
• Second, match your conduct to your contracts: Simply disseminating the arbitration agreement is not enough. In the event that there is resistance by an employee, it should be met with a reminder (both in writing and verbally) that the arbitration agreement is a mandatory condition of employment and that an employee’s continued employment is considered acceptance of arbitration, even if the employee refuses to sign.
• Additionally, watch your wording: The dissent in Sohnen pointed out that the arbitration agreement referenced a “mutual agreement to arbitrate.” The dissenting judge was concerned that this term could be construed as evidence that Sohnen intended to implement arbitration only where a bilateral agreement existed, which clearly wasn’t the case.

To expand on this last point, employers must understand that a poorly drafted arbitration agreement may be useless. As one example, the NLRB recently invalidated an employer’s arbitration agreement because the overly broad language could be construed to prohibit employees’ access to the NLRB resolution process.²

We also want to point out an additional lesson from another recent case: Arbitration agreements can be retroactive. In a twin case recently decided, the Court of Appeals held that an agreement that required arbitration of all claims “which may arise out of or be related in any way to” the employee’s employment applied to claims that were included in a previously-filed lawsuit, and not just future disputes. ³

California courts appear to be telling us that they are increasingly willing to enforce appropriate arbitration agreements. Golden State employers should learn this lesson quickly and take full advantage of this trend. And as trial attorneys, we speak from experience when we urge employers to embrace arbitration and avoid the vagaries of jury trials.

For more information or to discuss any of your employment concerns, please contact our employment attorneys at Hall Griffin LLP.

Authors:

Stephanie M. Stringer, Esq
John A. Cone, Jr., Esq

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