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Lack of Signed Arbitration Agreement Means HR Director Cannot Be Forced to Arbitrate Claims, California Court Rules

Date: 10.30.2012

A human resources director who never signed her employer’s arbitration agreement, concealed that fact from her employer, and resigned her job could not be required to arbitrate her claims for wrongful termination and sexual harassment, the California Court of Appeal has ruled.  Gorlach  v. The Sports Club, No. B233672 (Cal. Ct. App. Oct. 16, 2012).  The Court affirmed the denial of the employer’s motion to compel arbitration.

Background

Susan Gorlach was the human resources director for The Sports Club (“TSC”).  In 2010, TSC revised its employee handbook to include an arbitration agreement that all employees were required to sign as a condition of employment.  Gorlach was responsible for distributing the new handbook to employees and obtaining signed arbitration agreements.  In late June 2010, Gorlach reported to the Chief Operating Officer that all but four corporate employees had signed the arbitration agreement.  She did not mention that she had not signed the agreement. In late July 2010, Gorlach, while still gathering employee signatures, suggested that TSC “think about” how the company would proceed if an employee refused to sign.  Gorlach resigned from her position the next month and sued TSC for wrongful termination, sexual harassment, and retaliation, among other things. 

TSC denied the allegations and asked the trial court to compel arbitration.  It argued that although Gorlach did not sign the arbitration agreement, she assented to it by her continued employment with TSC.  It contended the arbitration agreement thus was an implied-in-fact contract between Gorlach and TSC. Further, TSC asserted Gorlach is estopped from claiming the arbitration agreement does not apply to her because she deliberately misled the employer into believing that she signed it, and TSC relied on her misrepresentations to its detriment.

The trial court declined to compel arbitration.  It ruled that although Gorlach, by omission, “intentionally misled” TSC to believe she had signed the agreement, the fact is that she had not signed.  Therefore, the court ruled Gorlach was not equitably estopped from denying the existence of the agreement and that no implied contract existed between the parties.

Applicable Law

Under California law, equitable estoppel occurs when “one has, by false statements or conduct, led another to do that which he would not otherwise have done and as a result the other has suffered injury.”  The party claiming estoppel must have “relied to its detriment on the party to be estopped.”

California law defines an “implied contract” as one whose “existence and terms of which are manifested by conduct.”  Cal. Civ. Code § 1621.  Implied contracts arise in cases involving unexecuted arbitration agreements when (1) employees have knowledge of the arbitration agreement and (2) employees continue to work after receipt of the arbitration agreement.  Whether an implied contract exists is a question of fact.

No Estoppel or Implied Contract Found

TSC argued Gorlach was equitably estopped from contending that the arbitration agreement did not apply to her because she deliberately misled the company that she had signed the agreement; as a result, TSC was denied its preferred, arbitral forum.  While the Court agreed that Gorlach had misled TSC, there was no evidence that TSC relied on her misrepresentation to its detriment.  Thus, the Court concluded that no equitable estoppel occurred.

TSC next argued that Gorlach had impliedly agreed to arbitration by continuing to work for the company after it had introduced the new employee handbook and arbitration agreement.  The Court found this contention unsupported by the evidence and there was no mutual intent to enter an arbitration agreement.  In addition, TSC informed employees that “as a condition of employment,” they had to sign the arbitration agreement.  This implied the arbitration agreement was not effective until signed and distinguished this case from Craig v. Brown & Root, Inc.  84 Cal. App. 4th 416 (Cal. Ct. App. 2000), the Court determined.  In Craig, the employer unilaterally implemented an arbitration policy and, under those circumstances, an implied arbitration agreement arose as a result of the employees’ continued employment.  This was not the case here.  The Court affirmed the denial of TSC’s motion to compel arbitration.

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This case illustrates a pitfall for the unwary.  If an employer intends to require employees to sign an arbitration agreement as a condition of employment or continued employment, it must obtain a signed agreement.  In addition, the employer should consider developing a system to check that those signatures are obtained, including the signatures of members of management.  Jackson Lewis attorneys are available to answer questions about this case and how to ensure arbitration agreements are enforceable.