Employee Required to Arbitrate Employment Dispute Despite Refusing to Sign Binding Arbitration Agreement by Continuing to Work

On April 10, 2019, the California Court of Appeals held in Diaz v. Sohnen Enterprises that an employee must arbitrate her discrimination claims against her employer because she consented to an arbitration agreement by continuing to work.  The split, three-judge panel sent the employee’s claims to arbitration even though she never signed the written arbitration agreement and verbally rejected it!

The Court stated in relevant part that “California law in this area is settled: 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.”

This case is a win for employers who institute mandatory arbitration agreements as a condition of employment or continued employment.  
 

The Facts of the Case:

Sohnen Enterprises, the employer, notified its employees in person that it was adopting a new dispute resolution policy requiring arbitration of all claims, and provided them with copies of the arbitration agreement putting them on notice that continued employment would constitute acceptance of the agreement’s terms. Days later, Diaz informed Sohnen’s Human Resources department that she did not wish to sign the agreement. She was again reminded that her continued employment constituted acceptance of the requirement to arbitrate. Diaz served Sohnen with a state court complaint alleging claims of discrimination, along with a letter indicating that she previously rejected acceptance of the arbitration agreement.

The Courts’ Rulings:

The trial court denied Sohnen’s motion to compel arbitration, concluding that the arbitration agreement was a “take-it or leave-it” contract of adhesion and that “there was no meeting of the minds.”  Sohnen appealed and, in a split opinion, the Court of Appeal reversed, concluding that there was sufficient evidence of consent to arbitration, as demonstrated by Diaz’s continuation of her employment.

The Appellate Court viewed Diaz’s written objection, submitted several days after the arbitration policy was announced, as an attempt to repudiate the agreement to arbitrate at most, although neither party put the issue of repudiation before the Court.  As to the issue of enforceability, the Court found “no evidence of surprise nor of sharp practices demonstrating substantive unconscionability.”

The Appellate Court’s Dissent Cautions Employers

The dissent expressed reservations about Sohnen’s actual intent, noting that while there was some evidence that the company intended to implement arbitration unilaterally, language in the arbitration agreement referencing “mutual[] agree[ment] to arbitrate” could also be construed as evidence that Sohnen intended to implement arbitration as part of a bilateral agreement—which here, it did not have.


For more information on implementing and enforcing binding arbitration agreements, feel free to contact Lisa Sherman at [email protected] or (424) 249-3631.

 

Lisa Sherman
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California Employer Defense Attorney