Arbitration Agreement Not Enforceable, California Court Rules

By Joanne Deschenaux, J.D. Feb 9, 2017

A written arbitration agreement between an employee and her employer could not be enforced because the document failed to properly identify the claims covered and to adequately specify the procedures to be followed, the California Court of Appeal ruled. The court affirmed a lower court's refusal to compel arbitration of the employee's claims under the California Fair Employment and Housing Act.

In July 2001, Julie Flores began working for Nature's Best Distribution in the shipping/receiving department. After she was terminated following a medical leave, she filed a complaint against the company in November 2014, alleging disability discrimination, failure to engage in the interactive process, failure to accommodate disability, failure to prevent discrimination or retaliation, and wrongful termination in violation of public policy.

Nature's Best filed a petition to compel arbitration of the claims and to stay judicial proceedings on the grounds that Flores had signed an arbitration agreement. The trial court denied the petition, and Nature's Best appealed.

The appellate court noted that when a petition to compel arbitration is filed, the employer must show that an agreement to arbitrate exists. California contract law applies to determine whether the parties formed an enforceable contract.

The court then concluded that Nature's Best failed to show that Flores had agreed to submit her claims to binding arbitration.

First, the court found that while the agreement stated that it was between "employee and company," it did not define either term. While the signature block had the name "Julie Flores" printed and signed under the word "employee," the signature block for the employer was not filled in, dated or signed. Therefore, it was not clear which entity or entities were covered by the agreement.

Second, the agreement required the employee to "submit all legal, equitable and administrative disputes to the American Arbitration Association (AAA) for mediation and binding arbitration" except for those disputes covered by a collective bargaining agreement between Nature's Best and Teamsters Local 692, which represented some of the company's employees. However, the agreement failed to define which disputes would be subject to arbitration before the AAA and which would be subject to resolution through the grievance and arbitration procedure contained in the collective bargaining agreement. The company's motion to compel arbitration did not include any explanation of why Flores' claims were not covered by the collective bargaining agreement.

Third, the agreement failed to identify which set of AAA rules would apply to binding arbitration. The agreement simply stated that disputes that were not subject to the grievance and arbitration procedure in the collective bargaining agreement were to be submitted to the AAA for mediation and binding arbitration to be held in accordance "with the rules of" the AAA.

The company provided to the trial court a copy of AAA rules, but those rules became effective in 2013—about 12 years after Flores signed the agreement. It did not produce evidence that identified any particular set of AAA rules that were in effect at the time of the signing. According to the court, Nature's Best could have but did not specify the type or version of AAA rules in the agreement, attach a copy of the governing rules, or provide information such as a website link to Flores informing her where she might find the governing arbitration rules.

Therefore, the court concluded that the agreement was ambiguous regarding:

  • Who the covered employer was.
  • Whether the arbitration provision of the agreement and not a grievance and arbitration procedure of the collective bargaining agreement applied to any or all of Flores' claims.
  • Which rules and procedures governed the arbitration.

The court concluded that no agreement had been reached between the parties and that, therefore, the trial court was correct in refusing to compel arbitration.

Flores v. Nature's Best Distribution, No. G052410, Cal. Ct. App. (Dec. 27, 2016).

[SHRM members-only platform: SHRM Connect]

Professional Pointer: California courts are often wary of arbitration agreements in the employment context. To ensure enforceability, all agreements must be carefully drafted and should be reviewed by counsel.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.

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