Arzate v. Ace American Insurance Company, — Cal. Rptr. 3d — (2025) began as a familiar case: plaintiffs signed arbitration agreements (“Agreement”) with their employer that contained a class action waiver. But when a dispute arose, plaintiffs disregarded their Agreements and filed a class action lawsuit. The defendant filed a motion to compel arbitration. The trial court granted the motion, enforced the class action waiver, and stayed the action pending arbitration.
However, plaintiffs did not initiate arbitration. Unsurprisingly, neither did the defendant. After all, who sues themselves? Nonetheless, the trial court concluded that based on the terms of the Agreement, the defendant—not the plaintiffs—was required to initiate arbitration. And because the defendant did not do so, it waived the right to arbitrate the dispute.
The express terms of the Agreement are instructive. Specifically, the Agreement required that the “party who wants to start the [a]rbitration [p]rocedure should submit a demand,” which must be filed “within thirty (30) calendar days from the date of entry of the court order.”
The trial court reasoned that while the plaintiffs filed the class action suit and sought relief, “they have heavily contested any requirement to arbitrate these claims” and therefore never “wanted” or “demanded” arbitration. Instead, the court held that the defendant was the party who “wanted” arbitration. And because the defendant “took no action within 30 days” of the court’s order staying the action pending arbitration, it was “in material breach.”
The California Court of Appeal sided with the defendant/employer and reversed the trial court’s decision. When doing so, the Court of Appeal explained that contract interpretation rules required that the arbitration-initiation provisions be read in the context of the Agreement as a whole, not in isolation.
The Court of Appeal explained that, in the context of an arbitration agreement, the provision for “wanting” arbitration could not “refer to a preference for arbitration over litigation becausethe parties already ruled out litigation as an option in any dispute governed by the arbitration agreements.” Instead, “wanting” arbitration could only refer to a desire to seek redress for an employment-related claim. The Court of Appeal also noted that the Agreement incorporated the American Arbitration Association’s Employment Arbitration Rules and Mediation Procedures, which defined the “claimant” as the initiating party. The Court of Appeal reasoned that because the employees initiated the lawsuit, they were the claimant and were responsible for initiating arbitration.
Arzate stands for the proposition that—where valid and enforceable arbitration agreements exist—employees bringing claims against their employers must initiate arbitration. But for the avoidance of any doubt, employers should consider drafting their arbitration agreements to expressly state which party must initiate arbitration.