Seyfarth Synopsis: Everything was smooth sailing with your latest greatest arbitration agreement, but then an employee refused to get on board. What do you do now? Keep reading for a primer on navigating some murky waters.
Even in a post-Epic Systems world, where more and more employers are rolling out mandatory arbitration agreements with class-action waivers, California has discouraged such agreements. This tension raises the question: how close to the wind can an employer sail to impose arbitration on employees who refuse to sign arbitration agreements?
What Are My Options And What Are The Potential Risks?
Option #1—Man Overboard: Terminate the employee.
Dismissing an employee for refusing to sign an arbitration agreement has been challenged as a wrongful termination in violation of public policy, but years ago in Lagatree v. Luce, Forward, Hamilton & Scripps, the Court of Appeal decided that because public policy favors arbitration, an employer can lawfully dismiss an employee for refusing to sign an arbitration agreement presented as a condition of employment. The issue may acquire practical significance, however, if many employees refuse to sign the agreement. Some employers will not want to follow through on dismissing each such employee, and may generate discrimination claims if the employer selectively determines which non-signing employees to dismiss. (A potential way to finesse such a potential dilemma is to issue a written arbitration program that will become effective without any signature.) Additional issues may arise if the arbitration agreement implicates pending litigation, which arguably might enable a protesting employee to argue that the new employment practice is retaliatory.
Option #2—Sink or Swim: Explain to the employee that the choice is hers and educate the employee on the benefits of arbitration, and then live with the employee’s choice. The object is to obtain a truly voluntary arbitration agreement, but the task is difficult in that California courts are prone to view employer comments as inherently coercive. The voluntary nature of the agreement could be further demonstrated, however, by offering some extra payment or benefit to those employees who do sign the arbitration agreement.
With this option, the employee could still refuse to sign, leaving the employer with Option #1 (terminate the employee) and Option #3 (do nothing).
Option #3—Keep Eyes on the Horizon: Do nothing.
If the arbitration agreement requires an employee signature, then the employer cannot enforce the agreement against an employee who declines to sign, even though the employer can enforce the arbitration agreement against those who do sign.
As noted, some employers finesse this issue by presenting arbitration programs as a condition of employment, which contemplates no employee signature to obtain proof of consent. Rather, the employer proves consent by proving distribution of the arbitration program, with a notice that employees will accept the arbitration agreement through continued employment. These agreements are generally enforceable as to at-will employees, as long as they are not unreasonably one-sided. A further measure sometimes used to fortify proof of consent is an opt-out provision—permitting employees who don’t like arbitration to affirmatively remove themselves from the obligation to arbitrate by giving the employer written notice within a specified number of days following the day they receive notice of the arbitration program.
Workplace Solutions: Since California runs a tight ship when it comes to evaluating arbitration agreements, arbitration agreements must be in shipshape. While it is not a purely legal consideration, employers should consider how an arbitration program could make waves in the workplace by undermining employee morale.
Because of the lack of legal clarity, the best approach is to not terminate an employee who refuses to sign an arbitration agreement, and to instead consider taking the risk that if a class-action litigation ensues, there may be a few employees whose claims are not subject to arbitration (a risk that might be further reduced if the employer offers some extra payment or benefit). Seyfarth is here to help in the event you are considering rolling out an arbitration agreement, or if you already have and anticipate a storm on the horizon.