California Court of Appeal: Employer Cannot Compel Arbitration Unless There Is A Signed Arbitration Agreement

Chairs Around a Table

Since the United States Supreme Court’s decision in AT&T Mobility v. Concepcion, more and more employers have sought to get out of court and into arbitration when dealing with employee disputes. The California Courts of Appeal, however, are not making that easy when it comes to an employer’s burden to show the existence of a valid agreement to arbitrate. Several months ago, the Second Appellate District held in Sparks v. Vista Del Mar Child and Family Services that an arbitration policy in an employee handbook was not enough to force arbitration. Similar decisions have reached the same conclusion, e.g., Carey v. 24 Hour Fitness USA, Inc., (5th Cir. Jan. 25, 2012).

Hot on the heels of the Sparks decision, the Second District took it one step further on October 16, 2012, holding that an unsigned arbitration agreement is not enforceable even where the employee was aware of the agreement, that she was required to sign the arbitration agreement as a condition of continued employment, was an officer in charge of implementing the arbitration agreement company-wide, and actively misled the employer into believing she had actually signed the arbitration agreement.

The plaintiff (Gorlach) was the Human Resources Director for The Sports Club Company (Sports Club) until she resigned in August 2010. In the months prior to her resignation, Sports Club created a new arbitration agreement that was to be a required term for all employees, including executives. Sports Club tasked Gorlach with implementing and collecting signed arbitration agreements, and she led Sports Club executives to believe that she had signed the arbitration agreement, but she never did. Instead, after quitting, Gorlach sued Sports Club for wrongful termination, retaliation, and paramour sexual harassment, among other claims.

Sports Club’s efforts to compel arbitration were denied at the trial court, which found that even though Gorlach had intentionally misled the company to believe she had signed the agreement, without a written agreement the trial court could not compel arbitration under the California Arbitration Act, which requires among other things a “written agreement”.

The Court of Appeal affirmed. First, it held Gorlach was not equitably estopped from denying the existence of the arbitration agreement because there was no evidence that Sports Club relied to its detriment on Gorlach’s implied representations that she had signed the arbitration agreement. At the time Gorlach resigned, Sports Club was still rolling out the arbitration agreement, had not yet decided what to do if an employee refused to sign it, and had not terminated any non-signing employees. So there was no reason to believe that Sports Club would have terminated Gorlach prior to her resignation date if it knew she had not signed the agreement. Second, the appellate court held that there was no implied-in-fact arbitration agreement between the parties because there was no evidence that Gorlach ever intended to enter into the agreement. Gorlach’s refusal to sign the arbitration agreement, despite Sports Club’s requirement that she do so as a condition of employment, demonstrated that she did not intend to be bound by it. Conversely, a signed agreement would likely have resulted in arbitration being compelled.

The case is Gorlach v. The Sports Club Company.