Employer Waited Too Long to Force Arbitration of Workplace Claims

By Joanne Deschenaux February 5, 2021
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Although a beverage distributor entered into a valid arbitration agreement with its employees, two truck drivers seeking to bring a class action against the company did not have to arbitrate their claims because the employer waited two years to demand arbitration, a California appeals court ruled.

In addition, the employer had previously told the trial court that it did not intend to arbitrate and had engaged in pretrial procedures, the appellate court noted. Therefore, the employer waived its right to demand arbitration.   

The employer's handbook provided that all employment-related claims against the company were to be resolved by binding arbitration. The truck drivers each signed a form agreeing to arbitrated disputes.

Seven years after they signed the agreements, the two employees filed a class-action complaint alleging wage and hour violations. At that time, the employer told the trial court that "at the moment," it did not intend to rely on the arbitration agreement, but it reserved the right to do so at a later time.

The lawsuit proceeded, and the parties participated in pretrial procedures, including an attempt to settle the dispute through mediation. When that failed, the parties engaged in the discovery process through which the employees requested relevant documents from the company. Although the employer objected to the discovery requests on various grounds, it did not object on the grounds that the parties had agreed to arbitrate their claims.

About 18 months after the lawsuit was filed, the company sent a letter to the employees demanding arbitration and stating its intent to file a motion to compel arbitration if they did not agree to arbitrate.

The parties, however, continued to engage in discovery for the next six months before the employer filed a motion to compel arbitration and stop the trial court proceedings. The employees claimed that the employer had waived its right to arbitrate by unreasonably delaying its motion.

The employer blamed at least part of the delay on its inability to locate the signed arbitration agreements with the employees. The trial court denied the employer's motion to compel arbitration. The court found that the employer knew from the beginning of the proceedings that it had an arbitration policy and failed to show that it conducted a diligent search for the signed agreements.

Even after locating the signed agreements, the employer continued to act in a manner that was inconsistent with the right to arbitrate, the trial court found. Furthermore, the court said, the employees had been prejudiced by the delay because they spent time and money engaging in discovery and other pretrial procedures.

The trial court denied the employer's motion to compel arbitration, and the appeals court affirmed the lower court's decision.             

Arbitration Can Be Waived

The appeals court first noted that arbitration is not a matter of absolute right and it can be waived. Among other factors a court can consider:

  • Whether a party waited an unreasonable period before seeking to stop the court proceedings.
  • Whether a defendant's actions were inconsistent with the right to arbitrate.
  • Whether the delay affected, misled or prejudiced the opposing party.

Although the employer claimed that it acted reasonably in waiting to file the motion to compel arbitration until after it located the signed arbitration agreements, the court noted that it was undisputed that the employer was aware of its right to arbitrate at the start of litigation.

Under California law, it is enough for a party moving to compel arbitration to cite to the terms of the governing agreement, the appellate court said. The party is not required to produce the actual executed arbitration agreements before filing its motion.

The 24-month delay prior to the employer filing its motion to compel arbitration was unreasonable, the court said.

In addition, the court said, the employer acted in a manner inconsistent with its right to arbitrate by stating in two pretrial status conferences that it did not intend to arbitrate. The employer met with the employees regarding discovery and participated in an informal discovery conference.

And finally, the court said, the employees were prejudiced by the delay because they spent time and money engaging in discovery and other pretrial procedures.

Garcia v. Haralambos Beverage Co., Calif. Ct. App., No. B296923 (Jan. 4, 2021).

Professional Pointer: What constitutes an "unreasonable" time in seeking arbitration will depend on the facts of the particular case and whether the opposing party has suffered any prejudice because of the delay.

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

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