Employers have long been scrutinized for perceived unequal bargaining power when it comes to enforcement of company-drafted arbitration agreements.  Indeed, both the California legislature and the courts have aimed to protect employees from unduly oppressive, one-sided, or otherwise unfair agreements.  In some cases, this scrutiny extends to extrinsic statements and circumstances surrounding an employee’s review and signing of an otherwise enforceable arbitration agreement.

            In Velarde v. Monroe Operations, LLC, an employer was denied the right to compel arbitration because it was alleged that, during the onboarding process, the HR representative made certain false or misleading statements such as: “if there are ever any issues, [the arbitration agreement] will allow us to resolve them for you” and “[t]his will help us resolve any issues without having to pay lawyers.”  In fact, the arbitration agreement incorporated the intricacies of civil litigation, including the requirement to draft a formal complaint in a legal pleading, propound and respond to discovery, and conduct motion practice.  Moreover, the agreement was provided with 30 other documents that had to be signed, while the HR representative was standing nearby, waiting for the employee to sign everything so that she could begin working that day.  In short, there was no meaningful opportunity to review the documents prior to signing them.  As the Court of Appeal noted in affirming the trial court’s denial of the employer’s motion to compel arbitration: “…the agreement did not match up with [the employee’s] reasonable expectations given what was expressly conveyed to her.” 

            The Court of Appeal made clear that the arbitration agreement was unenforceable due to the coercive nature of the circumstances: “Had [the employer] either correctly explained the terms of the agreement, or had not explained them at all, and had given [the employee] a reasonable opportunity to review the agreement and to consult counsel, ‘this would be a different case.’”  These final lines of the opinion should be of particular concern to employers.  The Velarde court may have opened the door to a new set of potential challenges to arbitration agreements.  What amount of time must pass to allow a “reasonable opportunity” to review the agreement?  Does the inquiry change if the arbitration agreement is presented without comment from a company representative?  Does an employer lose the right to require arbitration as a condition of employment if it does not provide the employee with sufficient time to consult with a lawyer prior to completing the onboarding process?

            In addressing facts unique to the case, the Court of Appeal has prompted more questions than it has answered, and employers are left with no choice but to look at their own arbitration agreement execution practices, without the benefit of judicial guidance, to attempt to ensure that they are not inadvertently inviting challenges similar to those presented Velarde v. Monroe Operations, LLC.

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