Employer’s Delay is Fatal to Enforcement of Arbitration Agreement
Employer’s Delay is Fatal to Enforcement of Arbitration Agreement

On January 4, 2021, a California appellate court held an employer waived its right to enforce an arbitration agreement against a truck driver who filed a wage and hour class action against it, by waiting almost twenty months after the case was filed to make an arbitration demand.  The court held that the delay was unjustified because the employer’s conduct in defending the case in court for that period of time was inconsistent with its right to arbitrate and because such delay prejudiced the employee’s ability to use the benefits and efficiencies of arbitration. Garcia v. Haralambos Beverage Co., No. B296923, 2021 WL 22015 (Cal. Ct. App. Jan. 4, 2021).

Haralambos Beverage maintained an employee handbook providing for mandatory arbitration of employment disputes, and asserted in its Answer to Paul Garcia’s Complaint that Garcia had entered into an agreement to arbitrate his claims.  However, in its initial representations to the Court, Haralambos Beverage stated that it did not intend to raise arbitration as a defense to the Court’s jurisdiction, stating instead that it merely “reserved the right to do so” at a later time.  Although the case was filed in November 2016, Haralambos Beverage did not locate Garcia’s arbitration agreement until June of 2018, when it was preparing its responses to Garcia’s discovery requests after a failed mediation.

Haralambos Beverage demanded arbitration shortly after locating the agreements, and subsequently filed a motion to compel arbitration in November 2018.  The court concluded that the twenty-four month delay between being served with the Complaint and filing that motion was too long to permit it to enforce the agreement, when in the interim Haralambos Beverage had agreed to a protective order to facilitate the production of classwide information, engaged in a classwide mediation, responded to Garcia’s discovery requests including requests for classwide information, and participated in the distribution of a classwide privacy opt out notice procedure (known as a Belaire-West mailing) for the purpose of determining whether the putative class members would agree to be contacted by Garcia’s attorneys.  The court noted that these actions were particularly inconsistent with Haralambos Beverage’s motion to compel arbitration, in which it sought to arbitrate Garcia’s claims on an individual as opposed to a class-wide basis.

The court noted that at the time the lawsuit was filed, Haralambos Beverage had located documents confirming its policy of requiring employees to sign arbitration agreements as well as a checklist showing that Garcia received such an agreement.  However, the court did not state whether this would have been a sufficient basis for asserting the right to arbitrate before the arbitrator actually located the signed agreements.  Rather, it concluded that that by waiting until Haralambos Beverage found the agreement to demand arbitration, this undue delay prejudiced Garcia in light of the time and effort that it required of him to litigate the claim in court before arbitration was demanded.

The effect of the court’s ruling was to deprive Haralambos Beverage of the right to enforce an agreement purportedly requiring individual arbitration of Garcia’s wage and hour claims and to instead require it to continue defending the class action lawsuit in court.  The case accordingly serves as an important reminder to employers to keep agreements requiring arbitration of employment disputes secure and readily available to rely on in the event suit is filed, and to promptly move to enforce such agreements in that instance.

This AALRR post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process. 

© 2021 Atkinson, Andelson, Loya, Ruud & Romo

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