Recent California Arbitration Decisions Provide Cautionary Tale for Employers

Author: Regina Silva

Guest Editor: Alla Policastro

September 9, 2020 11:00am

While California still awaits to find out the status of AB 51, which banned mandatory arbitration agreements effective January 1, 2020, but was enjoined by a federal district court in February (and is on appeal), our Courts are still providing guidance with respect to arbitration agreements in place prior to 2020.  More recent decisions suggest the Courts are scrutinizing agreements allegedly signed electronically, as well as conducting strict reviews of the language of agreements.

In Cummings v. Eureka Restaurant Group (2020 WL 63211)[1], the plaintiff (a former employee) filed a class action lawsuit against his employer (“Eureka”) for various labor law violations.  Eureka filed a petition to compel arbitration of plaintiff’s claims, relying upon an “e-signed” agreement.

As part of its Petition, Eureka offered declarations showing it used an electronic system to recruit employees, job seekers apply for positions online and consent to electronic access, and candidates are required to create an account with a unique username and password.  Eureka claimed the credentials are confidential, and the company could not reset passwords or access these accounts.  When an employee was hired, they complete employment documentation on a computer which was located in the workplace (a restaurant).  One of the documents included in the employment documentation is an arbitration agreement which employees can sign and accept, or opt out.  Eureka offered a print-out which showed plaintiff’s signature on the arbitration agreement.

Plaintiff denied that he e-signed the agreement, and claimed in the middle of filling out the documents online, his manager interrupted him and asked him to review a copy of the food menu.  Plaintiff claimed the manager asked him to write down his username/password so she could complete his documentation.  The manager denied signing plaintiff’s documents for him on rebuttal, and claimed she had only initialed documents he had already signed.

The trial court, indicating this was a close call, denied Eureka’s Petition to Arbitrate, finding it had not met its burden to show plaintiff had manifested assent to the agreement.

In issuing its ruling, the Second District Court of Appeal noted Eureka could have timely requested discovery if it wanted to, but instead just relied upon the counter declaration of plaintiff’s former manager.  The Court stated it must accept the trial court’s resolution of the disputed facts (dueling declarations).  The court also noted it was up to Eureka to prove authenticity of the electronic record.  Despite evidence from Eureka’s software creator showing how usernames and passwords are unique to each employee, the court commented the software creator assumed plaintiff did not share his username/password, and if someone else logged in using plaintiff’s credentials then plaintiff’s signature was not his own.

Consequently, the Court found plaintiff’s declaration was sufficient to prove he did not e-sign the arbitration agreement, and it was not for the Court to reassess the trial court’s credibility determinations.

Consequently, the Court found in favor of plaintiff, and affirmed the decision of the trial court.

In the case of Garner v. Inter-State Oil Company (2020) 52 Cal.App.5th 619, plaintiff, a former employee of Inter-State Oil, filed a class action case against Inter-State Oil (“Inter-State”) alleging various wage/hour allegations.

In 2014, plaintiff signed an arbitration agreement which also contained a class action waiver. Inter-State filed a Petition to Compel Arbitration, which was granted by the trial court.

On appeal, plaintiff claimed the arbitration agreement gave him the right to pursue his class claims in arbitration.  The Court of Appeal indicated there were two important sentences in the arbitration agreement which required careful review.

The first sentence stated:  “to resolve employment disputes in an efficient and cost-effective matter, you and Inter-State Oil Co. agree that any and all claims arising out of or related to your employment that could be filed in a court of law, including but not limited to, claims of unlawful harassment or discrimination, wrongful demotion, defamation, wrongful discharge, breach of contract, invasion of privacy, or class action shall be submitted to final and binding arbitration, and not to any other forum.” (Emphasis added.)  The second relevant sentence was bolded, and provided as follow: “This Arbitration Agreement Is A Waiver Of All Rights To A Civil Jury Trial Or Participation In A Civil Class Action Lawsuit For Claims Arising Out Of Your Employment.”

Plaintiff conceded the second sentence above constituted a waiver but argued that he did not waive his rights to submit his class action claims to arbitration.  Inter-State argued there was no agreement for plaintiff to arbitration class action claims, and plaintiff expressly waived his right to participate in a class action.

The Court noted, however, the waiver sentence at issue provided plaintiff waived his right to “participation in a civil class action lawsuit,” not to participation in any class action claim.  By using the word “lawsuit,” this is a reference to court actions.  The court also stated the only sentence which referenced class claims required arbitration.

Consequently, the Court found reading the agreement as a whole, the agreement was to arbitrate ALL claims, including class claims, with a notice at the end of the arbitration agreement which waived all jury trials and class action lawsuits.

What Do These Decisions Mean?

Employers who use electronic portals for all employee documents might considering adding another layer of verification when an employee signs documents, such as emailing back to the employees the more important documents like the signed arbitration agreements (fully executed) with a comment such as “enclosed please find the arbitration agreement with your signature and management’s, for your records.”  If an employee does not reply or protest he/she did not sign the agreement, this could be used against the employee later if they claim they did not e-sign the document.  Employers who have arbitration agreements which are older, have ambiguous language, or were not drafted by employment counsel, should consider having employment counsel review their agreements to ensure consistency and clarity.


[1] This decision was unpublished.

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