If you are a business owner in California attempting to enforce an arbitration clause in an employment dispute, then you need to take notice of two California Courts of Appeal decisions that address issues that could result in a court negating the efficacy of an arbitration provision.
The first notable decision can be found in Garcia v. Haralambos Beverage Co. In this case, the Second District Court of Appeal upheld a trial court’s decision to deny a motion that sought to compel arbitration filed by a defendant.
The Court denied the motion because it determined the defendant waived the right to compel arbitration via an employment agreement.The Court explained that arbitration can be voluntarily waived by the parties and that waiver may occur in the following instances:
- when there is evidence to indicate the party’s actions are inconsistent with the right to arbitrate;
- when litigation has been “substantially invoked” and the parties involved in the legal dispute had already taken significant action to prepare for the lawsuit prior to the party notifying the opposing party of their intent to invoke an arbitration clause;
- when a party either requested arbitration enforcement very close to an impending trial date or delayed for a long period of time prior to seeking a stay in order to pursue arbitration;
- when a defendant seeking arbitration also filed a counterclaim without requesting a stay of the proceedings;
- when important intervening procedural actions, such as taking advantage of judicial discovery procedures not available in arbitration, had already taken place; and
- when invocation of the arbitration clause would prejudice the opposing party.
The facts in the Garcia case are worth review, especially for business owners who include arbitration clauses in their contracts with employees. The defendant in Garcia actually asserted arbitration as an affirmative defense but failed to actually take the steps necessary to compel arbitration until almost two years into a class action lawsuit. The defendant claimed the delay was due to an inability to locate the actual signed copies of the agreement to arbitrate. The Court found this explanation to be unreasonable, particularly given the fact that the defendant was aware of its own policy requiring arbitration and maintained checklists showing that plaintiffs received a copy of the arbitration agreement.
In addition, the Court found the defendant acted in a manner inconsistent with its right to arbitrate by representing in two status conference statements that it did not intend to arbitrate. The Court also noted the defendant’s delay, during which time discovery was initiated, impaired the plaintiffs’ ability to realize the benefits and efficiencies of arbitration.
Arbitration Clauses within Independent Contractor Agreements
In addition to the Garcia decision, another important case impacting arbitration provisions is Ali v. Daylight Transport LLC. In this case, the First District Court of Appeals rejected a trucking company’s attempt to invoke an arbitration provision within an agreement entered into by independent truck operators. The Court pointed to several aspects of the arbitration provision contained within the agreement that were deemed unconscionable under California law. These provisions included the following:
- The defendant was in a superior bargaining position and presented the contracts on a “take it or leave it” basis;
- The arbitration provision contained an unreasonably short 120-day limitations period; and
- The parties were required to split the cost of arbitration, which would impose a much larger financial burden on the plaintiffs relative to the defendants in the litigation.
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