California Appellate Court Enforces Arbitration Agreement Signed After Lawsuit Filed

California Appellate Court Enforces Arbitration Agreement Signed After Lawsuit Filed

In most employment-based arbitration scenarios, the employee signs an arbitration agreement before starting work — or at some point during his or her employment.  The employee then sues the employer for wage claims or some form of wrongful termination claim.

Once in a while, however, the employee sues his or her employer before signing an arbitration agreement. Though it may seem strange, it happens.  For example, in one case I dealt with, the employee left work for an extended period of time. While away, he sued his employer for various wage claims. He later returned to work for the same employer.  Upon returning, he filled out various employment forms and signed an arbitration agreement. The issue in “post-lawsuit” arbitration agreement cases is whether the arbitration agreement covers the already-pending claims.

California arbitration cases are chock-full of decisions holding that the scope of arbitration agreements should be interpreted broadly. See e.g., EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1320–1321 (“California has a strong public policy in favor of arbitration. Given that strong public policy, any doubt as to whether plaintiff’s claims come within the arbitration clause must be resolved in favor of arbitration.”); EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1320–1321 (“Given that strong public policy, any doubt as to whether plaintiff’s claims come within the arbitration clause must be resolved in favor of arbitration.”).

But the “scope” issue has been in the context of which claims are covered.  Does this “broad interpretation” rule also apply as to when the claims are made?

Previously, no California case specifically addressed this issue.  One case that at least contained the issue was a Florida federal court case, Jones v. Waffle House, Inc. (11th Cir. 2017) 866 F.3d 1257.  In Jones v. Waffle House, the employee applied for employment with one Waffle House, was not hired, but sued for the company’s alleged failure to provide him a copy of his background check.  After suing, he then obtained a job with another Waffle House and signed an arbitration agreement. Waffle House then moved to compel arbitration. The 11th Circuit ultimately ordered arbitration be compelled. However, this may have been because of the arbitration agreement’s broad language that required “all claims and controversies (claims), past, present, or future” relating to the employee’s employment be arbitrated.

But what if the arbitration agreement is more ambiguous on past or future claims?  Recently, the Second Appellate District reversed a trial court decision finding pending claims were not covered by an arbitration agreement that did not specifically address pending claims.

In Salgado v. Carrows Restaurants, Inc. (2019) 33 Cal.App.5th 356, the plaintiff sued an entity related to his employment, signed an arbitration agreement, and then sued Carrows Restaurants, Inc.  The two covering clauses did not specifically address pending claims:

The Company and I agree and acknowledge that we will utilize binding arbitration as the sole and exclusive means to resolve all disputes which may arise out of or be related in any way to my application for employment and/or employment, including but not limited to the termination of my employment and my compensation.

Both the Company and I agree that any claim, dispute, and/or controversy that I may have against the Company . . . or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration . . . .

The plaintiff successfully opposed the arbitration motion at the trial court, in part, by arguing that the arbitration agreement could not be applied “retroactively.”  But the Second Appellate District reversed that decision.  It first reiterated that “Doubts about the applicability of the arbitration clause to the dispute should be resolved ‘in favor of sending the parties to arbitration.’”  Salgado, 33 Cal.App.5th at 360.  It then used this broad interpretation rule to interpret the following language as covering pending claims: “which may arise out of or be related in any way . . . “  It held that although the term “may arise” referred to future claims, since it also said “or be related in any way” that this contemplated also covering claims already asserted:

The second phrase following “or” broadly applies to “all disputes” related “in any way” to employment. This language is “clear and explicit.” (Esparza v. Sand & Sea, Inc., supra, 2 Cal.App.5th at p. 789, 206 Cal.Rptr.3d 474.) Salgado’s current action is a dispute that falls within the meaning of this provision.

Salgado, 33 Cal.App.5th at 360–361.

Although Salgado might support the enforcement of an arbitration agreement that is silent on the issue of “pending claims,” employers and retailers would do well to take another look at the covering clauses of their arbitration agreements to make sure they are sufficiently broad to cover pending claims.

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