HR - Arbitration Issues

By: Employer Not Required To Initiate Arbitration Following Court-Ordered Arbitration

The California Court of Appeal, Second Appellate District recently issued a clarifying decision in Michelle Arzate, et al. v. ACE American Insurance Company, addressing which party is responsible for initiating arbitration following a court order granting employer’s motion to compel arbitration. For employers, the decision offers essential guidance on structuring arbitration agreements to avoid ambiguity and potential disputes.

Key Case Details

The plaintiffs, employees of ACE American Insurance Company, filed a class action lawsuit alleging various wage and hour violations. ACE moved to compel arbitration based on an arbitration agreement (“Agreement”) between the parties. The trial court granted this motion and stayed the case pending arbitration. However, neither party initiated arbitration within the 30-day period specified in the Agreement, prompting the plaintiffs to request that the stay be lifted. The trial court ruled that ACE’s failure to initiate arbitration waived its right to arbitrate. On appeal, the California Court of Appeal reversed that decision, holding that the responsibility to initiate arbitration rested with the plaintiffs—the party asserting employment-related claims—rather than with ACE, the party requesting arbitration.

The Court of Appeal’s Reasoning

The Court of Appeal focused on the language of two documents:

1. Language of the Arbitration Agreement: The agreement did not explicitly assign the duty of commencing arbitration to the employer. Instead, it used language that designated initiation to the party who “wants” to commence arbitration. Interpreting this broadly, the appellate court determined that the plaintiffs, as the claimants, were responsible for initiating arbitration, despite plaintiffs’ claims that they did not “want” to commence arbitration.
2. AAA Rules Incorporated by Reference: The arbitration agreement incorporated the American Arbitration Association (AAA) rules, which clearly assign the responsibility for initiating arbitration to the “initiating party” identified as the claimant. Because the plaintiffs were the ones who filed the lawsuit, they were deemed the claimants and, therefore, responsible for initiating arbitration under the agreement’s terms.

The Court of Appeal rejected plaintiffs’ argument that the employer, ACE, being the party “wanting” arbitration, should be responsible for starting the process. They found this argument to be too narrow of an interpretation and emphasized that initiating arbitration is the duty of the party asserting claims, regardless of who originally requested arbitration. Ultimately, the appellate court concluded that the plaintiffs’ failure to initiate arbitration prevented the process from moving forward. The ruling underscores that advancing a case—even if by way of arbitration—is the responsibility of the claimant.

What This Ruling Means for California Employers

This decision carries several important implications for California employers:

• Arbitration Agreements Should Be Clear: Employers should review their arbitration agreements to eliminate any ambiguity about which party is responsible for initiating arbitration. Clearly defining these obligations can help prevent disputes and streamline the arbitration process.
• AAA Rules and Similar Provisions: If an arbitration agreement incorporates rules from organizations such as the AAA, ensure that employees are informed about these rules and their implications.
• Minimize the Risk of Waiver: While the appellate court ruled that a failure to initiate arbitration does not automatically constitute a waiver, clear agreements help employers preserve their arbitration rights and avoid unwarranted challenges.
• Consult Legal Counsel: Seek legal advice to ensure that arbitration clauses are enforceable and aligned with current case law developments.

If you have questions about your organization’s arbitration agreements or need assistance reviewing your policies, please contact one of our experienced labor and employment CDF attorneys.

By: Employer Strikes Gold: California Court of Appeals Reverses Dismissal of Mining Company’s Arbitration Agreement 

In a recent unpublished California appellate court decision, the Court unanimously reversed the lower court’s ruling that an agreement to arbitrate contained in an employee handbook was unenforceable. 

Case Background

In May 2023, former employee Seth Robert Nelson filed a lawsuit against Golden Queen Mining Company LLC, alleging violations of California wage and hour laws. The Company sought to compel arbitration of the claims, citing an arbitration agreement kept within the Company’s employee handbook that Nelson had signed during his employment. The trial court denied the motion based on its determination that two provisions in the handbook acknowledgment, which also contained the employee’s agreement to arbitrate, were inconsistent and rendered the agreement unenforceable. One provision stated that the handbook’s “guidelines” did not create any contractual rights, while the other acknowledged receipt of a voluntary agreement to contractually arbitrate employment disputes. 

The Appellate Court Decision

The Court of Appeal disagreed with the trial court’s conclusion, finding that the agreement was separate from the handbook’s guidelines and therefore, enforceable. The court explained that although both the arbitration agreement and the handbook’s guidelines appeared in the same acknowledgment, they were not part of the same contractual framework.

Key to the decision was the court’s distinction between the terms “guidelines” and “arbitration agreement.” The court noted that the “guidelines” in the handbook referred to general policies, which were not intended to create enforceable contractual obligations. In contrast, the arbitration agreement was a distinct and specific contract designed to resolve disputes through arbitration. The Court noted that the separation of the two provisions within the acknowledgment made it evident that the arbitration agreement was not part of the “guidelines” contained in the employee handbook.

As a result, the Court reversed the trial court’s order denying the motion to compel arbitration and remanded the matter for the trial court to resolve the remaining issue of whether the agreement was unconscionable. 

Implications for Employers and Employees

This ruling is a win for employers seeking to enforce arbitration agreements, particularly in cases where those agreements are included in employee handbooks. Nonetheless, the decision underscores the importance of clear and distinct language when drafting arbitration clauses and employee acknowledgment forms, and serves as a reminder that the best practice is to issue a separate arbitration agreement. 

Employers in need of assistance updating employee handbooks and/or arbitration agreements should consult with a CDF attorney to ensure their policies are enforceable under California law.