Continued Employment Means Arbitration Acceptance, California Court Rules

Employment Law

By continuing to work for a company, the plaintiff impliedly accepted an arbitration agreement, a California appellate panel has ruled, reversing the denial of a motion to compel arbitration.

Erika Diaz was present at a company meeting on December 2, 2016, when the chief operating officer informed all employees of Sohnen Enterprises about a new dispute resolution agreement. In her explanation, the COO stated that continued employment by an employee who refused to sign the agreement would itself constitute acceptance of the dispute resolution agreement.

On December 19, Diaz met with company representatives after she indicated that she did not wish to sign the agreement. She was again advised that continuing to work constituted her acceptance of the agreement. She and her lawyer presented the company with a letter stating that she planned to continue working but rejected the agreement on December 23.

Diaz also filed suit against Sohnen, alleging workplace discrimination. The employer filed a motion to compel arbitration. A trial court denied the motion in an oral ruling, holding that the agreement was a “take-it or leave-it contract and (sic) adhesion. There is no meeting of the minds.”

The employer appealed and the appellate panel reversed, holding that an agreement was formed between Diaz and Sohnen.

“California law in this area is settled: when an employee continues his or her employment after notification that an agreement to arbitration is a condition of continued employment, that employee has impliedly consent to the arbitration agreement,” the panel wrote. “The uncontradicted evidence in this record demonstrates that Diaz maintained her employment status between December 2 and December 23, and remained an employee at the time of the hearing in this case.”

As a result, the plaintiff was already bound by the arbitration agreement before the presentation of the letter indicating both her rejection of the agreement and her intent to remain employed. The court rejected Diaz’s contention that the letter forced Sohnen to choose whether to proceed without arbitration, finding that at most “it was an attempt to repudiate the agreement” that failed.

“In any event, because the employment agreement between Diaz and Sohnen was at-will, Sohnen could unilaterally change the terms of Diaz’s employment agreement, as long as it provided Diaz notice of the change,” the court wrote.

Further, Diaz failed to demonstrate that the arbitration agreement itself was unenforceable, the appellate panel said. The trial court found that the contract was adhesive in nature but made no factual findings and did not address whether the agreement was substantively unconscionable.

“This record contains no evidence of surprise, nor of sharp practices demonstrating substantive unconscionability,” the panel wrote. Diaz neglected to specify any terms of the agreement that she believed were unconscionable in her briefing, waiving her argument, the court said.

Reversing the denial of the motion to compel arbitration, the appellate panel remanded the case to the trial court.

One member of the panel dissented, writing that “an employee, like any contracting party, can reject an arbitration agreement offered by an employer and yet continue to work for the employer.” Although Diaz rejected the agreement both orally and in writing, the majority opinion “gives employers the unilateral power to create an implied agreement simply by announcing that continued employment will constitute acceptance, no matter how strongly or clearly the employee manifests his or her rejection of the proposed agreement,” the dissent said.

To read the opinion in Diaz v. Sohnen Enterprises, Inc., click here.

Why it matters: A victory for the employer, the California appellate panel’s opinion affirms that an employee impliedly consents to an arbitration agreement when he or she continues his or her employment with the company after notification of the agreement. The court also declined to find the arbitration agreement unconscionable simply because it was a contract of adhesion, noting a lack of evidence of substantive unconscionability in the record.



pursuant to New York DR 2-101(f)

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