With individual employee claims snowballing into mountainous class actions more and more frequently, it’s no surprise that employers are increasingly requiring mandatory arbitration of employment-related disputes.
But even when an agreement is in place, it’s not uncommon for an employee to try to get around it by arguing that the agreement is invalid and unenforceable.
A recent California Court of Appeals decision (Wisdom v. AccentCare, Inc., Calif. Court of Appeals (Dist. 3) No. C065744) provides a potent reminder that it’s not just how the agreement is phrased that matters when it comes to enforceability—but also how you present the agreement and obtain the employee’s consent to it. (Note: The California Supreme Court has agreed to review this case.)
Employees Sue for Wage and Hour Violations
Norma and Katrina Rodriguez, Batseba Escoto, and Jessica Bondi worked for home healthcare company AccentCare, Inc., as on-call staffing coordinators. Their duties included ensuring that all clients remained staffed during off hours. They were required to respond to an off-hour call within 20 minutes.
The employees sued AccentCare, alleging they weren’t paid for all of the overtime and time they spent handling off-hour calls. The employer sought to compel arbitration of their claims based on an acknowledgment form they signed when they applied for their jobs.
The acknowledgment was the last page of an application form that AccentCare gave the employees, along with several other forms. The acknowledgment page consisted of five paragraphs to initial and a signature line at the bottom. The third paragraph was an arbitration agreement.
The trial court found the arbitration agreement invalid and denied the employer’s request to compel arbitration. The employer appealed.
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Where the Employer Went Wrong
Although California courts generally encourage the arbitration of disputes, they will invalidate arbitration agreements they consider “unconscionable,” meaning extremely unfair or one-sided.
The Court of Appeals had no problem agreeing with the trial court that AccentCare’s arbitration agreement was unconscionable. It cited several shortcomings:
1. The agreement was imposed on the employees without the opportunity to negotiate. This situation usually leads to “inherent unconscionablity” because of the typically unequal bargaining power between the employer and the applicant as well as the nature of the relationship, the court found.
The Court of Appeals pointed out that a pre-employment arbitration agreement stands between the applicant and necessary employment—and only the most sought-after candidates are in a position to refuse a job because of an arbitration agreement.
The court also noted the language of the agreement itself implied that there was no opportunity to negotiate its terms. The agreement directed the applicant to “acknowledge your understanding of the following statements and agreements …”
What followed, according to the court, were terms that an applicant wouldn’t expect to be negotiable—including statements that the employer could investigate the applicant’s references, that the employer was a smoke- and drug-free workplace, and that nothing in the application created an employment contract.
2. The arbitration rules weren’t attached. Although the agreement stated that arbitration would be conducted under the rules of the American Arbitration Association, the rules were not attached. Numerous court cases have held that not providing a copy of the arbitration rules that would bind the employee supports a finding of unconscionability, the court stated.
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3. The applicants were subject to “the element of surprise.” The arbitration agreement was one of several forms the employees received when applying for their jobs. No one called attention to the agreement or explained that it would waive their right to a trial—and the employees didn’t know what binding arbitration meant. As a result, they reasonably expected that they would be entitled to a trial to determine their legal rights and were surprised to learn that they were not.
4. The employer wasn’t obligated to submit its claims to arbitration. The Court of Appeals explained that it’s extremely one-sided for an employer with superior bargaining power to impose arbitration on an employee bringing a claim but not accept the same limitation when it wants to pursue a claim against the employee (for example, claims related to intellectual property rights or nondisclosure agreements).
The AccentCare agreement contained phrases like “I hereby agree … ,” “I further agree … ,” and “I agree … ,” indicating that only one party was agreeing to submit all disputes to arbitration—the party whose signature appeared at the bottom of the form.
The court also noted that the employer’s post-hire arbitration agreement included phrases like “both AccentCare, Inc. and I agree …” To the court, this discrepancy confirmed that the pre-employment agreement didn’t impose obligations on both parties.
Tomorrow, tune in for tips on making sure your arbitration agreements will stand up in court.
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From what I read, the Supreme Court is reviewing whether the agreement was indeed one-sided or whether the employer was also obligated to submits claims to arbitration. Still, even if it was, will that be enough to salvage the agreement? I’ve seen several cases where the court invalidated an arbitration agreement simply because the employer failed to provide a copy of the rules or info on how to access them.
From what I read, the Supreme Court is reviewing whether the agreement was indeed one-sided or whether the employer was also obligated to submits claims to arbitration. Still, even if it was, will that be enough to salvage the agreement? I’ve seen several cases where the court invalidated an arbitration agreement simply because the employer failed to provide a copy of the rules or info on how to access them.