Arbitration agreements, particularly those containing a class action waiver, are a powerful tool for employers seeking to efficiently manage employment disputes. A recent California appellate court ruling, Velarde v. Monroe Operations, LLC, highlights the importance to employers of properly managing the distribution of such agreements to employees to ensure their enforceability.
Arbitration Agreement Presented During Onboarding
Monroe Operations, LLC, doing business as Newport Healthcare, hired Karen Velarde as a care coordinator. During orientation with a Human Resources Manager on her first day of work, Velarde was presented with a stack of 31 documents and was told she needed to complete all the forms before she could start working. Included in the documents was an arbitration agreement, which Velarde initially refused to sign because, as she explained to the HR Manager, she did not understand what it was and thus did not feel comfortable signing it. In response, the HR Manager told her “this will help us resolve any issues without having to pay lawyers.” Velarde was also told she needed to sign the agreement in order to start working and the HR Manager stood and waited for Velarde to sign all the documents presented to her. The arbitration agreement was five pages long, contained 15 sections and referred to various federal laws and arbitration rules.
Trial and Appellate Courts Find the Agreement Unenforceable
Velarde signed the agreement and was later terminated, then sued the company for alleged discrimination, retaliation, and violation of whistleblower protections. The trial court denied the company’s motion to compel arbitration of Velarde’s claims, finding that the agreement was both substantively unconscionable due to an improper provision prohibiting Velarde from seeking judicial review of any arbitration award and procedurally unconscionable because of the way the agreement was presented to her.
The appellate court upheld the trial court’s ruling denying the motion to compel, focusing its analysis on the procedural defects in the way the arbitration agreement was presented to Velarde. The court found it particularly problematic that the company “pressured Velarde into agreeing to arbitration by presenting her with the agreement, alongside 30 other documents, to review and sign while its HR Manager stood and waited”, thus giving Velarde “little to no time to review the terms of the agreement.”
Court Highlights Misinformation and Lack of Informed Consent
The court also noted that the terms of the agreement, which included reference to several different federal laws and arbitration rules, would not be readily meaningful to a lay person. The court explained that it was not saying a party must consult with an attorney before executing an arbitration agreement, but the company’s conduct “deprived Velarde of having a meaningful opportunity to reflect and decide for herself if she wanted to speak with an attorney or conduct her own research prior to signing.” In addition, the court expressed its concern over the fact that the HR Manager misrepresented the terms and nature of the agreement by stating that it would give the company the power to resolve all disputes between it and Velarde without either party having to pay for lawyers. The court explained that this statement was “manifestly untrue” since the agreement required the parties to resolve all disputes “in an adversarial arbitration before an arbitrator in which all parties would bear their own attorney fees” [unless otherwise ordered by the arbitrator].
The court also emphasized the fact that it was essentially irrelevant whether the HR Manager intentionally misled Velarde or simply provided misinformation out of negligence, ignorance, or inadvertence. The court emphasized that its focus was on the effect of the misinformation not the intent behind it.
The Takeaway
This decision makes clear that, when distributing arbitration agreements, ensuring that the distribution is handled appropriately is equally important to ensuring that the agreement’s contents are legally valid. Employers should be sure their HR Managers or others responsible for conducting new hire orientations and/or rolling out arbitration agreements are trained on what not to say regarding the content or impact of the agreement. They should also ensure that employees are given a reasonable amount of time to review the agreement before deciding whether to sign it and consider including a provision in the agreement in which the employee acknowledges having been provided an opportunity to consult with legal counsel before signing.
In addition, although not at issue in this particular case, employers should provide non-English speaking employees with a translated version of the agreement. These safeguards should help ensure the enforceability of the arbitration agreement in the unfortunate event of an employment dispute.
