Two California Courts of Appeal came to two different conclusions on motions to compel arbitration on the same day last week (April 10), again demonstrating the care that must be taken in drafting and presenting arbitration agreements to workers.
In Diaz v. Sohnen Enterprises (Second Appellate District Case No. B283077), the company called employees into a meeting, gave them an arbitration agreement, and expressly told them that continuing employment would constitute acceptance even if they refused to sign. The plaintiff kept working but told managers 12 days later that she did not want to sign the agreement. She was again advised by management that continuing to work would constitute acceptance.
A week later, she and her attorney sent a letter rejecting the agreement; she also served her complaint. The Court of Appeal held, nonetheless, that she should be required to go to arbitration. The Court noted that it is settled law that an employee impliedly consents to arbitration by continuing to work after being told that the agreement is a condition of employment.
The Court said that unlike other cases where employers tried to use a general handbook consent or required a signature for consent, Diaz was presented with the agreement and told twice that continuing her employment was acceptance. Her employer “could unilaterally change the terms of Diaz’s employment agreement, as long as it provided Diaz notice of the change.”
On the same day, however, another Court of Appeal refused to enforce an arbitration agreement in another case, finding the agreement was unconscionable. In Subcontracting Concepts (CT), LLC v. De Melo (First Appellate District Case No. A152205), the company sought to compel into arbitration an independent contractor who brought an administrative claim through the Department of Labor.
The Court of Appeal held that arbitration could not be compelled, however, because the take-it-or-leave-it agreement was presented only in English (a language the plaintiff was not fluent in), referred to the American Arbitration Association without specifying or providing the rules, required the plaintiff to share arbitration costs (precluding a relatively inexpensive administrative forum), limited damages to actual monetary damages, and barred Private Attorney General Act (“PAGA”) actions.
The company argued that the agreement should not be reviewed under standards applicable to employment arbitration agreements because the plaintiff was an independent contractor, but the Court disagreed. It noted that the plaintiff brought a misclassification claim and was alleging he was an employee and that the power imbalance between the parties was akin to an employment relationship.
The two holdings, taken together, should serve as a reminder that employers are free to make arbitration agreements a condition of continued employment but should take care to ensure that employees and independent contractors are given clear notice and the terms of the agreement are enforceable under California law.
[The Diaz opinion is available at https://www.courts.ca.gov/opinions/documents/B283077.PDF. The Subcontracting Concepts opinion is available at https://www.courts.ca.gov/opinions/documents/A152205.PDF.]