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December 3, 2021

Lessons In Arbitration

A recent California Court of Appeal case (Najarro v. Horizon Personnel Services, Inc., (Oct. 2021)(“Najarro”)) brings to light a few key issues employers should keep in mind when offering arbitration agreements to their employees.

  • Arbitration agreements should not contain language that has the purpose or effect of waiving the employee’s right to bring a representative action under the California Labor Code Private Attorney General Act of 2004 (PAGA). The employer in Najarro included such a provision, even though “an employee’s right to bring a PAGA action is unwaivable.”[i] The court found the inclusion of this purported waiver to be substantively unconscionable,[ii] even though the plaintiffs had not attempted to bring a PAGA action.
  • Arbitration agreements must be signed by both parties – employer and employee – to be valid. This lack of mutuality was also cited by the Najarro court as being substantively unconscionable. The employer in Najarro not only failed to sign the arbitration agreement, but it failed to even identify itself; referring generically to the “Company” without identifying a specific person or contracting party.
  • Employees asked to sign arbitration agreements that incorporate specific arbitration rules (i.e., rules promulgated by a particular arbitration company such as JAMS or the American Arbitration Association) should be provided with a copy of those rules at the time they are asked to sign the agreement. While the Appellate Court remanded the issue of procedural unconscionability to the lower court, it did find that the employer’s failure to provide such rules “established at least some degree of procedural unconscionability.” The failure to provide such rules can be deemed oppressive in that it prevents an employee from engaging in a full review of documents fundamental to resolving their claims.
  • Employees should be given an opportunity to review and understand what they are being asked to sign. Actions such as refusing to explain what the employee is being asked to sign, statements made to pressure an employee into signing, misrepresenting the agreement as an “unimportant” document, failing to encourage employees with limited education to seek outside review of the agreement before signing, were found by the Najarro court to constitute fraud in the execution of a contractual document.

Members with questions concerning arbitration agreements should contact Western Growers for additional guidance.

[i] Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 383.

[ii] For a court to exercise its discretion to refuse to enforce a contract or clause as “unconscionable” both procedural and substantive unconscionability must be present.