Asking employees to sign an arbitration agreement is becoming more popular among employers in recent years. By signing such an agreement, employees consent to resolve their job-related claims such as discrimination, retaliation and wrongful termination through arbitration instead of going to court. It is an attractive option for employers looking for a way to avoid lawsuits in court. However, one decision published by the California Court of Appeals on December 27, 2016, sent a warning to companies that some arbitration agreements lack elements essential to establish a binding contract.
In Flores v. Nature's Best Distribution, LLC, 2016 Cal. App. LEXIS 1133 (4th Cir. 2016), a former employee filed several employment-related claims against Nature's Best and its affiliated companies. Nature's Best filed a petition to compel arbitration, arguing that the former employee had entered into an agreement to arbitrate disputes. The California Court of Appeals concluded that there was no agreement to arbitrate. In doing so, the Court emphasized the agreement's ambiguity. First, although the agreement contained the former employee's signature and identified her as the employee, the signature block for the employer did not identify which employer was a party to the agreement and was not signed. Second, the agreement did not define the claims which would be subject to arbitration by the American Arbitration Association ("AAA") rather than a union contract, which also covered the former employee. Finally, the agreement did not specify which AAA rules would apply. For example, the agreement did not state that the parties to the agreement would use the Labor Rules, the Commercial Rules or the Employment Rules. Choosing the correct rules is critical to the implementation of the arbitration and may be critical to the success or failure of either the employee or company in arbitration.
Therefore, this case serves as an important reminder for companies that when it comes to arbitration agreements, clarity is essential to their existence. Identifying parties and specifying which disputes will be arbitrated under which rules, are both key features of such clarity. Because arbitration is exploding as a popular vehicle for companies eager to resolve disputes outside of court, all employers should review their arbitration agreements with legal assistance to ensure that the agreements are enforceable.