Private arbitration has many benefits compared to traditional litigation (lower costs, more flexible procedural rules, and faster results, to name a few), but enforcing an arbitration agreement is sometimes more difficult than employers might expect.
A recent California Court of Appeal decision highlights the complexities and risks that employers face when attempting to enforce promises to arbitrate employment claims. It's important for employers to keep these issues in mind and work with counsel at a number of stages—when updating existing arbitration agreements, rolling out new ones, and enforcing those agreements in court.
In Najarro v. Superior Court of San Bernardino County, the court dealt with a number of questions, including the enforceability of a so-called "delegation clause" in the arbitration agreement. A delegation clause is a contractual provision that gives the arbitrator the initial task of deciding whether the parties' dispute must be arbitrated or whether it belongs in court. Unless an agreement includes a properly-drafted delegation clause, the court will get to decide this important question.
The question of who should decide the initial issue of whether arbitration is proper is a complicated one which requires employers and their attorneys to work closely together in reaching a strategic decision.
The employer in Najarro was trying to enforce two different versions of its arbitration agreement, both of which had delegation clauses. The court held that one of them did not have a valid delegation clause because it did "not clearly and unmistakably provide that only the arbitrator may decide enforceability." The problem with the agreement was that it also contained other language commonly found in contracts that spoke about what would happen if either an arbitrator or court found a portion of the agreement to be unenforceable for other reasons.
The main takeaway from the Najarro case for employers is that if you opt to delegate a question to the arbitrator, you must scrub the rest of the agreement to be sure there isn’t a clause elsewhere that undermines your objective.
The Najarro case also serves as a cautionary tale for employers on the importance of training HR teams on the basics of onboarding. A well-trained HR team that explains onboarding documents and allows new employees adequate time to review them can help mitigate the likelihood of former employees turned-plaintiffs being able to successfully avoid arbitration based on fraud, as the plaintiffs did in Najarro.
In Najarro, the plaintiffs each reported similar experiences with respect to signing both versions of the arbitration agreement. One plaintiff could not speak English, only had a second grade education, and could not read in English or Spanish. Despite these facts, the HR team refused to allow the new employee to take the Spanish version of the agreement home for review by a relative. In fact, she was told "It's okay if you don't know how to read, just sign them," and that the agreement was "nothing important." Several plaintiffs also reported being handed a stack of papers at a "glass window" and testified that the person handing them the agreement covered most of the text with their hands while telling plaintiffs to sign. This led the court to determine that both versions of the agreement were unenforceable due to fraud.
These are just a sampling of the issues California employers must consider when developing and enforcing their arbitration agreements. Because the stakes are often so high in employment disputes, employers should consult with experienced counsel and make sure their arbitration agreements are compliant, up-to-date, and are tailored to their strategic goals. If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at (818) 508-3700, or visit us online at www.brgslaw.com.
Sincerely,
Richard S. Rosenberg
Katherine A. Hren
Daniel J. Corbett
Ballard Rosenberg Golper & Savitt, LLP
