Employers Beware: Don’t Delay in Seeking to Compel Arbitration of Employment Disputes

A well-drafted arbitration agreement is crucial to ensuring claims arising from an employment relationship will be resolved by final and binding arbitration. However, it is equally important that an employer move quickly to enforce an arbitration agreement when an employee files a claim outside of the designated arbitration forum, and not take action inconsistent with an intent to arbitrate. This is the lesson from the Court of Appeal’s recent decision in Fleming Distribution Company v. Younan.

In this case Alfons Younan (former employee of Fleming) filed a complaint against Fleming for unpaid commissions, penalties and interest with the Labor Commissioner. In response, Fleming sent a letter to the Labor Commissioner stating the complaint should be dismissed because the parties agreed to resolve all claims by final and binding arbitration. The letter included a copy of the arbitration agreement signed by Younan. Fleming also stated it was prepared to file a petition to compel arbitration with the Superior Court if the Labor Commissioner did not dismiss the complaint.

The Labor Commissioner did not dismiss the complaint and scheduled a hearing for the wage claim on August 13, 2018. Fleming filed a motion to vacate the hearing and dismiss the complaint based on the arbitration agreement. Again, Fleming stated it was prepared to file a motion to compel arbitration with the Superior Court if the motion was not granted. The Labor Commissioner denied the motion and proceeded with the hearing; Fleming participated in the hearing.

Four months later the Labor Commissioner issued an award in favor of Younan for $27,412.60. Fleming appealed the award in the Superior Court, and filed a petition to compel arbitration, stay proceedings, vacate the Labor Commissioner’s award and dismiss the matter in its entirety. The trial court denied Fleming’s petition finding it waived its right to arbitration by taking steps inconsistent with an intent to invoke arbitration. Fleming appealed.

The Court of Appeal affirmed finding Fleming was well aware of the option to petition the Superior Court to compel arbitration shortly after Younan filed his complaint with the Labor Commissioner, but chose not to. Instead, Fleming fully participated in the Labor Commissioner hearing by presenting documentary evidence, cross-examining Younan and learning Younan’s trial strategies. It was not until February 8, 2019—20 months after Younan filed his Labor Commissioner complaint—that Fleming petitioned to compel arbitration. Concluding Fleming waived its right to arbitration the Court of Appeal held:

In light of Fleming’s repeated choice not to move to compel arbitration in the trial court, coupled with its full participation in the Labor Commissioner proceedings, the trial court correctly determined Fleming did not properly invoke the right to arbitrate by “tak[ing] affirmative steps to implement the process and participate in conduct consistent with the intent to arbitrate the dispute.

The Fleming Court’s decision is a clear reminder that the existence of an arbitration agreement does not guarantee that a dispute among the parties to that agreement will be arbitrated. The party desiring arbitration should act quickly to take steps to compel arbitration where the other party files a claim in another forum, while at the same time refraining from participating (as much as possible) in the non-arbitration forum.  

Nicholas Kanter is an Employment Defense and Business Litigation attorney.