The Labor and Employment Law Blog : Labor & Employment Lawyer & Attorney : Weintraub Genshlea Chediak Tobin & Tobin Law Firm : Sacramento California : Labor & Employment Law Blog

In the Grey case, the employer, AMS, had Grey complete a pre-hire application packet that included an Issue Resolution Agreement (“IRA”). The IRA provided that all disputes related to Grey’s future employment with AMS would be subject to arbitration. However, when Grey was actually hired by AMS, he was asked to sign an employment contract that stated that only disputes arising out of a breach of the employment contract would be subject to arbitration. That employment contract also contained what’s called an “integration” clause that provided: “This agreement is the entire agreement between the parties in connection with employee’s employment with [AMS] and supersedes all prior and contemporaneous discussions and understandings.”

Grey later sued AMS for a variety of claims and claimed that he was subject to harassment based on his sexual orientation. AMS moved the Court to compel arbitration pursuant to the IRA he signed. The Court ordered the case to arbitration. At arbitration, AMS successfully defended against Grey’s claims and not only had the trial court confirm the arbitration award, but also award costs to AMS for having to defend against Grey’s claims.

Grey appealed the decision and argued that the trial court erred in ordering the case to arbitration. The appellate court agreed. Why? Because of the inconsistency in the arbitration provisions in the employment contract that Grey signed at the time of hire and the IRA he signed during the pre-hire application process.

The Court ruled that, under California law, “the terms of a final integrated contract `may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement’.” The Court found that the employment agreement that Grey signed at the time of hire contained an “integration” clause that meant it was intended to be the “final” contract regarding Grey’s employment and superseded all prior agreements, including the IRA. While the IRA contained an arbitration provision that was broader (requiring the arbitration of any dispute relating to Grey’s employment); the employment contract was much narrower requiring arbitration only of breach of the agreement itself (and not statutory claims such as unlawful harassment). Because the employment agreement superseded the IRA, the Court held that it was improper to rule to order Grey to arbitrate his harassment claims. Therefore, the appellate court vacated the arbitration award and ordered that Grey be allowed to present his claims in state court.

Had the employer in the Grey case simply reviewed the various employment documents it had employees sign to ensure consistency, it may well have avoided the outcome of having won at arbitration but later losing on appeal.

To avoid this potential outcome, all employers should periodically review any documents they have employees sign, such as employment agreements, employee handbook acknowledgments, dispute resolution agreements and other policies. Not only should they ensure that these documents are updated to address any new laws, they should also be reviewed to ensure that they remain consistent with one another over time.
 

In Wisdom v. AccentCare, Inc. (Super. Ct. No. 34-2009-00063028 CU OE GDS), the plaintiffs filed a complaint alleging they were not paid for all of the overtime and time they spent handling off-hour calls while they were employed by AccentCare as on-call staffing coordinators.

When they applied for a job with AccentCare, four of the six plaintiffs signed an acknowledgment form titled: "Acknowledge Your Understanding of the following Statements and Agreements by Placing Your Initials in Each Paragraph, then Sign and Date Below." One of the paragraphs was an arbitration agreement that stated:

"I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by AccentCare, that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with AccentCare, whether during or after employment, will be submitted to binding arbitration. I agree that such arbitration shall be conducted under the rules then in effect of the American Arbitration Agreement."

After the lawsuit was filed, AccentCare sought to compel arbitration based on the signed acknowledgments. The trial court denied the motion on the ground that the arbitration agreement was unconscionable, and the Court of Appeal affirmed the judgment.

First, the trial court noted that the plaintiffs were not informed that signing the agreement was optional, and the heading indicated that signing was mandatory. Second, there was unequal bargaining power between the parties as few employees are in a position to refuse a job because of an arbitration agreement, and the nature of the employer-employee relationship leads to an inherent power imbalance. The agreement also implied that there was no opportunity to negotiate its terms as the other statements the applicants were directed to acknowledge were terms that an applicant would not expect to negotiate. For example, that the statements in the application were true, that AccentCare could investigate the applicant's references, that AccentCare is a smoke-free and drug-free workplace, and that employment would be at-will.

The trial court also stated that an element of surprise was present because the arbitration agreement was located in the middle of five uniform, single-spaced paragraphs, and was not distinguished in any manner, the meaning of the agreement was not explained, and the plaintiffs did not know what "binding arbitration" meant. Thus, the employees' reasonable expectation that they were entitled to a trial was disappointed.

Further, the trial court held the agreement was unenforceable because it was not mutual - there was no language indicating AccentCare agreed to submit to arbitration. The trial court noted the one-sidedness of the agreement due to the unambiguous phrases "I hereby agree" and "I agree," and pointing out that only the applicant signs at the bottom of the form.

Lastly, the agreement stated that arbitration would be conducted under the rules of the American Arbitration Association, but the rules were not attached. Thus, the employee is "forced to go to another source to find out the full import of what he or she is about to sign -- and must go to that effort prior to signing."

This decision is yet another signal that enforcing pre-employment arbitration agreements continue to be increasingly difficult for employers. Employers should review their arbitration agreements with their legal counsel to determine whether any changes should be made to reduce the risk that the agreement will ultimately be deemed unenforceable.