By Jason Resnick, Senior Vice President and General Counsel & Teresa McQueen, Corporate Counsel

Several recent cases addressing various aspects of the right to arbitrate issue are making the news. These cases and their impact on the right to arbitrate are outlined below.

Viking River Cruises, Inc. v. Moriana (6/15/2022)

In an 8-1 ruling, the U.S. Supreme Court ruled that the Federal Arbitration Act (FAA), which requires the enforcement of arbitration agreements, trumps the 2014 landmark California Supreme Court decision in Iskanian v. CLS Transp., which held that arbitration agreements purporting to waive the right to bring claims under California’s Labor Code Private Attorneys General Act (PAGA) are unenforceable.

The Court basically said employers can compel “individual” claims under PAGA to arbitration, and with the “individual” PAGA claims compelled to arbitration, a court must dismiss the “non-individual” PAGA claims for lack of standing. The court left open the door for the courts or the legislature to amend PAGA so that employees could have standing to bring collective actions in court, and side-step arbitration agreements. We know California legislators and plaintiffs’ attorneys are already scheming to get around Viking River.

The Viking River case stems from a lawsuit brought by plaintiff Moriana, a former sales representative for Viking River Cruises, who filed a PAGA claim, seeking to recover penalties for an alleged violation of wage and hour law against her, and on behalf of all other allegedly aggrieved employees based on violations she herself did not suffer. Viking River Cruises argued the claims were subject to individualized arbitration under the arbitration agreement Moriana had signed as a condition of her employment. Relying on Iskanian, the lower state courts held such waivers are unenforceable in PAGA cases, precedent which the U.S. Supreme Court has now repudiated.

Morgan v. Sundance, Inc. (5/23/2022)

The U.S. Supreme Court recently held that courts may not make up a new procedural rule based on the Federal Arbitration Act’s (FAA) “policy favoring arbitration.”

Plaintiff Morgan was an hourly employee working at a Taco Bell franchise (Sundance) who signed an agreement to arbitrate when she was hired. Despite having signed an arbitration agreement, Morgan later filed a nationwide collective action alleging violations of federal overtime laws. Sundance filed a motion to dismiss the complaint in court and participated in mediation. Eight months later (after mediation efforts failed), Sundance moved to stay the litigation and compel Morgan into arbitration. Morgan then claimed that Sundance had waived its right to compel arbitration on the grounds it has spent the past eight months acting inconsistently with its agreement to arbitrate. Relying on past precedents, Sundance argued that arbitration should be ordered as its delay in compelling arbitration had not prejudiced Morgan in her litigation efforts.

In response, the Court held the Eighth Circuit Court of Appeal erred in conditioning a waiver of the right to arbitrate on a showing of prejudice. A showing of prejudice is the type of arbitration-specific rule prohibited by the FAA. Among other things, the FAA seeks to assure arbitration contracts are treated—under the law—like all other contracts, and not in a way that favors arbitration.

The Court’s ruling on this essentially technical issue could have far-reaching implications on the state of arbitration depending on how the lower court rules on remand. Long term, the impact of this ruling could see an increase in the number of cases allowed to remain in civil court. A refocusing of the criteria for determining whether a party has waived its right to compel arbitration to a determination of inconsistency on the part of employers—without more—could make it easier for plaintiffs to keep claims out of arbitration.

Trinity v. Life Insurance Company of North America (5/17/2022)

This California Court of Appeal case reviews the sufficiency of electronically acknowledged arbitration agreements as well as procedural and substantive unconscionability.

Employees at Life Insurance Company of North America (LINA) were required to access the company’s handbook—which included the company’s arbitration provisions—electronically to review and accept both the handbook and the company’s arbitration policy. Under LINA’s processes for review and acceptance, once an employee electronically acknowledged the handbook—by clicking a box next to an acknowledgment statement and then clicking “done”—LINA’s system would then automatically generate and send to the employee a confirmatory email evidencing the acknowledgment.

The question of whether the parties had entered into an arbitration agreement centered around Trinity’s testimony that she had never seen or agreed to the arbitration agreement, nor would she have ever accepted the position if she knew agreeing to arbitration was a condition of employment. In rebuttal, LINA claimed its confirmatory email evidenced Trinity’s review and acceptance. The problem LINA faced was that it could not produce a copy of the confirming email nor account for how it was generated, stored or maintained.

Absent any tangible evidence to contradict Trinity’s testimony, the court shifted its focus to the credibility of the witnesses (i.e., Trinity and LINA’s Employee Relations Managing Director) and agreed to Trinity’s request for an evidentiary hearing. After listening to testimony from both parties, the court determined that LINA had failed to prove Trinity agreed to the arbitration provision in the employee handbook. The Court gave significant weight to the fact that despite LINA’s confidence an automatic email was generated and sent to Trinity, it could not produce the email nor confirm whether the email even existed.

Ultimately, the party seeking arbitration has the burden of proving (by a preponderance of the evidence) that an agreement to arbitrate exists. First and foremost, this means producing a written agreement. Absent the production of a written agreement, evidence of sufficient weight and character must be presented such that the court could not reasonably reject it. LINA failed on both accounts.

Lessons Learned

Each of these decisions provides some real-life lessons for employers who utilize arbitration agreements. In light of these cases, employers should consider the following:

•   California employers should review and, if needed, revise their arbitration agreements to ensure they do not carve out representative PAGA claims and will otherwise withstand legal scrutiny.

•   Arbitration agreements should always be considered a “standalone” document signed and dated by both parties, along with an internal code identifying which version of the company’s arbitration agreement the employee is signing.

•   As electronic signature options become more common in the workplace, employers need to make sure they understand how the electronic signing system works, how party signatures are recorded and how finalized documents are distributed and to whom.

•   If signing the agreement is voluntary, the employer should have the means to easily determine who has—and who has not—signed the agreement.

•   Technology can change rapidly in the workplace, so it is important that system audits are regularly performed to ensure accessibility of even the company’s oldest arbitration agreements.