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Naranjo v. Spectrum Sec. Servs., Inc.,15 Cal. 5th 1056 (2024)
See our in-depth analysis Employers Have a Good Faith Defense to Statutory Penalties for Wage Statement Violations
Garcia v. Stoneledge Furniture LLC, 102 Cal. App. 5th 41 (2024)
Summary: Although parties may delegate questions regarding the validity of an arbitration agreement to the arbitrator, the delegation presupposes the existence of an agreement, which the court necessarily must decide before it can enforce any such delegation.
A petitioning defendant fails to meet its burden of authenticating an arbitration agreement where it fails to show that only plaintiff could have placed the electronic signature on the agreement.
Facts: Plaintiff Isabel Garcia began working for Defendant RAC Acceptance East, LLC in 2016. She worked at a kiosk inside an Ashley HomeStore operated by Defendant Stoneledge Furniture LLC. Beginning in 2019, Defendant Inderjit Singh began working as a sales manager and worked closely with Plaintiff. In 2020, Plaintiff reported that Defendant Singh sexually assaulted her in his office, and she ultimately filed a complaint against Defendants. Defendant RAC filed a petition to compel arbitration pursuant to an arbitration agreement it claimed Plaintiff electronically signed during the onboarding process. In support of the petition, Defendant RAC submitted a declaration from its human resources information systems analyst that included, among other things, the following statements: Plaintiff created a unique user ID and confidential password using Taleo; Plaintiff executed an electronic signature acknowledgement and agreement stating her Taleo password would serve as her electronic signature on new hire documents; Plaintiff clicked on the link to review a standalone arbitration agreement; Plaintiff electronically signed the arbitration agreement; Plaintiff’s assent was evidenced by an electronic signature block with her name next to an execution date, as well as her name separately typed on the arbitration agreement; and all personnel documents were stored electronically in a confidential and secure manner. Plaintiff argued that Defendant RAC failed to meet its burden to prove she executed the agreement, and she flatly denied signing it. The trial court denied Defendants’ petitions to compel arbitration. It found that Defendant RAC met its initial burden by providing a copy of the agreement to arbitrate; however, because Plaintiff declared she did not sign the agreement or remember anyone asking her to do so, the burden shifted back to Defendant RAC to prove the authenticity of Plaintiff’s signature by a preponderance of the evidence, which it failed to do. The trial court found that the declaration did not detail the security precautions regarding the use of the Taleo software; the signature on the arbitration agreement lacked a date, time, or IP address; and the agreement contained no indication it was created within the Taleo system. Defendants appealed.
Court’s Decision: The California Court of Appeal affirmed. Defendants challenged the trial court’s order on two grounds: first, they argued that the court erred by failing to delegate to an arbitrator the decision of whether Plaintiff entered into an agreement to arbitrate; second, they argued that the court erred by finding Defendant RAC failed to prove the existence of an agreement. Applying a de novo standard of review to the former, the court noted that parties may delegate questions regarding the validity of an arbitration agreement (such as enforceability or unconscionability) or aspects of an arbitration agreement (such as whether a particular claim is subject to an arbitration agreement) to the arbitrator if they clearly and unmistakably agree to do so. However, the delegation of such questions presupposes the existence of an agreement, which the court necessarily must decide before it can enforce any such delegation. Therefore, the trial court (not an arbitrator) properly decided the issue as to the existence of an agreement. With respect to the latter ground, the court applied the three-step burden shifting process and concluded that Plaintiff’s declaration denying that she signed an arbitration agreement was sufficient to shift the burden. And while Plaintiff’s denial was adequate to shift the burden, she also provided additional evidence comparing the arbitration agreement to other documents that bore indicia of reliability not evidenced by the arbitration agreement (namely, an indication that Plaintiff assented by inputting her Taleo password and the same IP address underneath her electronic signature). Once the burden shifted, however, Defendant RAC failed to carry its burden because the evidence it provided did not show that only Plaintiff could have placed the electronic signature on the agreement. Instead, the declarant summarily concluded that Plaintiff electronically signed and acknowledged the agreement before exiting out of Taleo, with the only purported evidence being her name on the agreement. The court concluded that the trial court did not err as a matter of law, rejecting Defendant RAC’s challenge to the court’s finding that it failed to establish the authenticity of the signature on the agreement.
Practical Implications: We continue to see challenges to the authenticity of electronic signatures on arbitration agreements. Employers who administer arbitration programs should ensure that they have robust (and documented!) procedures to ensure that the employee signing the agreement is the only person who could have placed the electronic signature, and be prepared to explain in detail how those procedures work when moving to compel arbitration.
Cook v. University of Southern California, 102 Cal. App. 5th 312 (2024)
Summary: An adhesive arbitration agreement of infinite duration that applies to non-employment claims and lacks mutuality between an employee and an employer’s related third-parties contains a high degree of substantive unconscionability and may be unenforceable.
Facts: Plaintiff Pamela Cook filed a complaint against Defendant University of Southern California (“University”) and two of her coworkers alleging discrimination and harassment during the course of her employment based on her race. Defendants filed a motion to compel arbitration of each of Plaintiff’s 18 claims pursuant to the arbitration agreement Plaintiff electronically signed as a condition of her employment. The arbitration agreement covered an extremely broad range of disputes and provided that it superseded any prior or contemporaneous agreement on the subject, would survive the termination of Plaintiff’s employment, and could only be revoked or modified in a written document signed by the President of the University. The trial court, upon examining the agreement, determined that Defendants had demonstrated the existence of an agreement to arbitrate that encompassed each of Plaintiff’s 18 claims. The trial court nevertheless held that the arbitration agreement was unenforceable. It found that there was minimal procedural unconscionability due to the adhesive and non-negotiable nature of the arbitration agreement as a condition of employment with the University. It further found that the arbitration agreement had a high degree of substantive unconscionability because of the broad scope of the agreement, its infinite duration, and the lack of mutuality in the claims that were covered by the agreement. Defendants appealed.
Court’s Decision: The California Court of Appeal affirmed. First, the court noted that by its express terms, the agreement required the arbitration of all claims, whether or not arising out of Plaintiff’s employment with the University. The court held that where the plain language of the agreement required Plaintiff to arbitrate claims that were unrelated to her employment with the University, the scope of the agreement was overbroad and substantively unconscionable, especially where the agreement did not spell out a need for such breadth. Second, the court held that the arbitration agreement was substantively unconscionable because it survived indefinitely following Plaintiff’s termination from the University and could only be revoked with a signature from the President of the University. Though the court recognized that contracts will be deemed terminable at will after a reasonable period of time if the contract has neither an express nor implied term of duration, it found that the agreement here had an express contractual term of duration, i.e. when and if Plaintiff and the University’s President decided to specifically terminate the agreement. Lastly, the court held that the agreement was substantively unconscionable because it lacked mutuality. The lack of mutuality stemmed from the fact that the agreement required Plaintiff to arbitrate any and all claims she had against the University as well as any of its related entities, trustees, administrators, employees, or agents, but the agreement did not require the University’s “related entities” to arbitrate their claims against Plaintiff. Because the court found that severing the substantively unconscionable provisions of the agreement would materially alter the agreement, it upheld the trial court’s finding that the agreement was unenforceable.
Practical Implications: It seems we are giving this advice every few months, but the law in California on arbitration agreements is constantly changing: review your employment arbitration agreements. If you think the agreement may run afoul of the concerns expressed in this case, contact your trusted employment counsel to discuss whether changes may be necessary.
Hernandez v. Sohnen Enterprises, Inc., 102 Cal. App. 5th 222 (2024)
Summary: The FAA preempts Code of Civil Procedure section 1281.97.
Facts: Plaintiff Massiel Hernandez signed an arbitration agreement with her employer, Defendant Sohnen Enterprises, Inc., which provided that any disputes would be governed by the Federal Arbitration Act (“FAA”). When Plaintiff filed a complaint against Defendant for disability discrimination and California Labor Code violations, the parties stipulated to arbitration. However, when Defendant failed to pay the arbitration fees within 30 days of the due date, Plaintiff filed a motion to withdraw from arbitration and litigate in state court pursuant to California Code of Civil Procedure section 1281.97. The trial court found that Defendant had breached the arbitration agreement and granted Plaintiff’s motion. Defendant appealed, arguing that the FAA, not California law, governed the arbitration agreement and preempted section 1281.97.
Court’s Decision: The California Court of Appeal reversed. The court held that the arbitration agreement was governed by the FAA, including both its substantive and procedural provisions. As a result, the procedures of section 1281.97 did not apply. The court of appeal also held that even if section 1281.97 did apply, it would still reverse the order because the FAA preempts the provisions of section 1281.97 when the agreement falls within the scope of the FAA and does not expressly adopt California arbitration laws.
Practical Implications: This case now creates a split in the California Court of Appeal over whether the FAA preempts the California law that permits an employee to withdraw from arbitration if the employer does not timely pay the arbitration fees. We suspect the matter is now destined for the California Supreme Court to resolve.
