Workers Did Not Have to Arbitrate Claims Arising Before They Signed Arbitration Agreements

By Joanne Deschenaux, J.D. February 28, 2023

​Takeaway: Despite broad language that an arbitration agreement applied to any disputes "arising from or relating to" employment, employees were not required to arbitrate claims that arose before they signed the agreement, and while they were not directly employed by the company but were working for it through staffing agencies. 

​Two employees who initially worked for their employer through staffing agencies before signing employment letters that contained arbitration agreements were not required to arbitrate race bias claims that arose before they signed the letters, a California appeals court recently ruled.

The employer, a manufacturer of electric vehicles, operates a factory in Fremont, Calif. Through staffing agencies, one of the employees began working at the Fremont factory in November 2016, and the second began working there in March 2017. In July 2017 letters, the company offered the workers employment at specified wages and with specified benefits. The letters stated, "If you accept our offer, your first day of employment will be Aug. 2, 2017."

The employees each electronically signed their offer letters. Those offer letters contained a clause providing that any disputes "arising from or relating to your employment" would be resolved by binding arbitration.

In November 2017, a company employee filed a class-action complaint, alleging that Black employees at the Fremont plant were subjected to repeated instances of racial harassment and discrimination, including regularly being called racial slurs by co-workers and supervisors. The two plaintiffs in this case subsequently joined the class action.

The employer sought to compel arbitration of the plaintiffs' claims. It pointed out that none of the plaintiffs' allegations distinguished between the time they were employed by staffing companies and the time they were directly employed by the company, and argued the arbitration provision mandated arbitration because all of the claims "related to" the plaintiffs' employment with the company.

The plaintiffs argued that they were not obligated to arbitrate claims based on conduct before Aug. 2, 2017, which was the date the offer letter identified as the first day of employment.

The trial court granted the company's petition to compel arbitration in part and denied it in part. The court concluded the plaintiffs were required to arbitrate disputes that arose on or after Aug. 2, 2017, but that any claims based on conduct occurring before Aug. 2 were not within the scope of the arbitration agreements.

The company appealed.

Appeals Court

The company claimed that although the plaintiffs' direct employment did not begin until Aug. 2, 2017, the use of the phrase "arising from or relating to" employment signified the arbitration agreement was broad enough to encompass claims that arose while the plaintiffs were working for the company through a staffing agency.

The California appeals court rejected that claim, noting the "arising from or relating to" employment language had previously been construed to encompass claims not directly related to the employment contract itself, such as personal injury claims brought against the employer. However, the court said, the company cited no authority that relied on the broad language to require arbitration of a precontract claim—arbitration of a claim not rooted in the employment relationship between the parties.

The employer's proposed construction of "relating to," the court said, lacked support in case law and would expand the application of the arbitration provision well beyond the reasonable expectations of the parties.

The court further rejected the company's argument that the trial court erred in temporally dividing the plaintiffs' claims, sending to arbitration only those based on conduct during the period of direct, contractual employment.

It was true, the court said, that the plaintiffs asserted claims covering the entire time they worked at the company and did not assert separate, sequential hostile work environment claims partitioned by time period and based on alleged conduct occurring before and after Aug. 2, 2017. But, the court said, it was the company that obligated the trial court to temporally divide the plaintiffs' claims by moving for arbitration.

The court noted the company did not dispute that the plaintiffs claimed they were subject to discrimination during the periods they worked at the factory on assignment by staffing agencies, or that the allegations were sufficient to state hostile work environment claims based solely on conduct during those same periods.

Under California law, the court said, if a plaintiff's cause of action includes both arbitrable and inarbitrable claims, the trial court must sever the cause of action and order only the arbitrable portion to arbitration.

The appeals court concluded the trial court did not err in granting the company's petition to compel arbitration only as to the plaintiffs' claims based on conduct occurring after Aug. 2, 2017.

Vaughn v. Tesla Inc., Calif. Ct. App., No. A164053, Jan. 4, 2023.

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



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