Newsletter 2019-04-30T13:46:31-07:00

Newsletter – April 2019

An Arbitration Agreement is enforceable against an employee who objects to the new policy but continues to work.

An employer can enforce an arbitration policy for its employees provided notice is given; the employee’s consent is implied by her continued employment.  (Erika Diaz v. Sohnen Enterprises et al., No. B283077 (Ct. App. Apr. 10, 2019).)

Facts of the Case

Erika Diaz, an employee of Sohnen Enterprises (“Sohnen”), filed a discrimination lawsuit against the company. Only a few days earlier, Sohnen had notified employees that it was adopting a new dispute resolution policy requiring employees to arbitrate many legal claims involving Sohnen. Sohnen notified its employees in both English and Spanish that “continued employment by an employee who refused to sign the agreement would itself constitute acceptance of the dispute resolution agreement.”

Erika told Sohnen’s Spanish-speaking representative that she did not want to sign the agreement. Also, Erika and her lawyer sent Sohnen a letter saying that Erika did not accept the agreement but would continue working there. She then filed a lawsuit against the company.

Sohnen filed a motion to compel arbitration of Erika’s discrimination  claims, based on the new dispute resolution policy and Erika’s continued work for Sohnen after notice of the new policy. The trial court denied the motion. After Sohnen appealed, the Court of Appeal reversed the trial court’s decision. Effectively, this result means that Erika will have to arbitrate her claims against Sohnen.

Why Should Erika Have to Arbitrate Her Claims Against Sohnen?

The Court of Appeal’s opinion lists several reasons why the law requires that Erika be compelled to arbitrate her claims. First, it asserts that Erika formed an agreement with Sohnen to arbitrate. California law is settled that “when an employee continues his or her employment after notification that an agreement to arbitration is a condition of continued employment, that employee has impliedly consented to the arbitration agreement”.

The opinion cites many legal decisions to that effect, contrasting two cases noted in Erika’s brief. In one of those cases, the employee acknowledged receipt of an employee handbook but never acknowledged agreement to comply with an arbitration provision. In the other case, the employee had to sign to acknowledge the arbitration provision, plus the employee left her employment to avoid the arbitration provision. The facts are different in the Diaz case.

Second, the appellate court’s opinion notes that Erika made no real attempt to show that the arbitration agreement was unenforceable as a matter of law. While the trial court found that the agreement was “adhesive in nature”, neither the trial court nor Erika explained why the agreement was unconscionable.  In other words, the terms of the arbitration were not manifestly “unfair” to the Sohnen employees.

Finally,  it should be noted that this was not a unanimous decision.  Significantly, one justice on the Court of Appeal strongly dissented from the  majority opinion. Justice Segal laid bare several inconsistencies in the facts surrounding the presentation of the arbitration agreement to Erika and Erika’s continued employment at Sohnen. As a result, Justice Segal argues that Erika and Sohnen may never have formed an agreement to arbitrate – and in fact Erika expressly rejected the existence of such an agreement.  The dissent could be used as a basis for review of the decision by the Supreme Court.

The Takeaway

Employers have the power to impose arbitration agreements on current  employees even in the middle of their employment.  The key is to give notice and to expressly inform the employees that agreeing to the arbitration provision is a condition of continued employment.  An employee who knowingly chooses to continue to work even while expressly objecting to the arbitration policy will still be bound by the policy.