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Retroactive Applicability of Arbitration Clauses in Employment Agreements

Author: Andrew Smith

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December 9, 2019 10:00am

A recent decision from the Fourth District of the California Court of Appeal confirmed an earlier ruling that arbitration agreements entered into between employees and employers could apply to disputes that existed before the execution of the arbitration agreement.

In Franco v. Greystone Ridge Condominium (2019) 39 Cal.App.5th 221, the Court of Appeal upheld language found in an earlier 2019 Court of Appeal case, Salgado v. Carrows Restaurants (2019) 33 Cal.App.5th 356, wherein the Second District held an arbitration agreement can be applied retroactively to disputes which existed at or before the time of the agreement’s execution.  In both cases, the language of the agreements in question were clear and explicit, there was no language containing a limitation or restriction based on the age of covered claims; there was no qualifying language; and the language unequivocally requires arbitration for “any and all claims” the plaintiff has against his employer, its agents, and related entities.

The Franco decision made explicit the retroactive applicability of arbitration agreements which was decided in Salgado. The definitive nature of the earlier decision was somewhat compromised by the court remanding the case to the trial court for a determination of whether the agreement in question was unconscionable or void because of plaintiff being represented, and questions related thereto.

Finally, the Franco court addressed the ability of an employer to include and exercise a unilateral modification clause to make the agreement apply retroactively.  Such clauses are permissible and can be so exercised, but the implied covenant of good faith and fair dealing requires an employer to provide reasonable and express notice to employees regarding the applicability of such modifications to already existing claims.

Takeaway

Employers who seek to have their employees sign arbitration agreements are encouraged to both inquire specifically about existing claims against the employer at or before presenting the employee with an arbitration agreement, and to encourage the employee to review any such agreement with counsel.  If the employer seeks to exercise a unilateral modification clause, it is encouraged to provide complete and unequivocal notice to the employee of its intent to do so, and explain the full impact of any such modifications.

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