Monday, March 19, 2012

Arbitration Clauses: What to do When Current Employees Won’t Sign

My colleague, Travis Stokes, prepared this blog on arbitration agreements.  We often recommend that our clients use arbitration agreements with employees.  You can avoid a jury and the process is quicker and streamlined.  You can also stay out of the public eye. 

California courts often try to limit the scope, value or effectiveness of arbitration agreements.  In my opinion, courts "create" an issue so that an employee can stay in the court system.  This blog describes how one court prevented an employer from arguing that the employee's behavior constituted an acceptance of an arbitration agreement. 

Recently, employees working for our clients have asserted claims, and filed complaints in court.  Travis has been successful in removing those cases out of the courts and into arbitration.  Arbitration agreements must be carefully drafted.  Please, don't do it on your own.  Call Travis! 

Many employers recognize the value of implementing an arbitration policy for workplace disputes.  Requiring new hires to sign an arbitration agreement before beginning employment usually presents no problems.  The more difficult question is what to do when an employer implements a new policy requiring all employment disputes to be submitted to binding arbitration and current employees refuse to sign.  Is the arbitration agreement valid if the employee continues to work for the company after being presented with the arbitration agreement?  More specifically, does it matter if the employee simply remains on the job and says nothing (and signs nothing) as opposed to an employee who actually objects to the arbitration agreement and states that (s)he has no intention of arbitrating any claims?  Although recent case law sheds some light on these questions, the answer is far from clear.
Courts have acknowledged that when an employer changes a condition of employment such as imposing an arbitration clause, and the employee remains on the job, the employee has impliedly agreed to the changed terms.  (Craig v. Brown & Root (2000) 84 Cal.App.4th 416.)  To be sure, the Craig court concluded that because the employer mailed the already working employee a brochure that contained the arbitration agreement, and because the employee continued to work for the company for approximately another four years thereafter, an “implied-in-fact” contract was created and the employee was bound by the terms of the arbitration agreement.  Thus, the employee was compelled to submit her claims to arbitration. 

Nevertheless, in the more recent decision of Bayer v. Neiman Marcus Holdings, Inc. (N.D. Cal. Nov. 8, 2011) No. CV 11-3705 MEJ, 2011 U.S. Dist. LEXIS 129277, 2011 WL 5416173, the opposite conclusion was reached based on some different facts.  In Bayer, the already-working employee actually advised the company (verbally and in writing) that he did not accept the newly proposed arbitration agreement.  Although the employee continued to work for the company for another four years after the implementation of the arbitration policy, the Bayer court distinguished the Craig decision by explaining that when an employee expressly rejects the new contract term no implied-in-fact agreement is reached.  Thus, the Bayer court rejected the precedent set in Craig and refused to compel arbitration. 

Bayer is currently on appeal to the Ninth Circuit, and it will be interesting to see if the appellate court clarifies this issue of implied-in-fact agreements versus express rejection of a contract.  For now, employers should realize that implied acceptance of a newly implemented arbitration agreement (such as remaining in employment) may not be sufficient to compel the employee to arbitration and, consequently, the company will be forced to litigate the employee’s claim.

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