Employer’s Failure to Affirmatively Move to Compel Arbitration and Stay Labor Commissioner Proceeding Results In Waiver of Right to Arbitrate

In Fleming Distribution Co. v. Younan (Cal. Ct. App., May 15, 2020, No. A157038) 2020 WL 2511680, the California Court of Appeal, First Appellate District held that an employer waived its right to compel arbitration of a dispute with a former employee over unpaid commissions by delaying the filing of a motion to compel arbitration and actively participating in an administrative proceeding before the Labor Commissioner.

The Facts

Alfonus Younan (“Younan”) worked for Fleming Distribution Company (“Fleming”) as a sales representative from 2009 to 2016.  In June 2017, Younan filed a complaint against Fleming with the Department of Industrial Relations, Labor Commissioner’s Office for $22,000 in commissions, plus penalties and interest. 

On August 31, 2017, Fleming’s attorneys sent a letter to the Labor Commissioner asserting Younan’s complaint should be dismissed because the parties signed an arbitration agreement. The Labor Commissioner did not dismiss the complaint, yet Fleming opted not to file a petition to compel arbitration. 

On August 7, 2018, Fleming filed a motion with the Labor Commissioner to vacate the hearing and dismiss the complaint on the grounds that Younan’s employment application and agreement required arbitration of his claim.  Both parties appeared at the hearing before the Labor Commissioner.  Fleming’s motion to vacate was denied on the ground that Fleming had failed to obtain a stay from the superior court.  The hearing proceeded and the parties presented testimony, documentary evidence, and argument.

On December 5, 2018, the Labor Commissioner awarded Younan $22,000 in commissions and an additional $5,412.60 in interest, for a total of $27,412.60.  Fleming filed a notice of appeal in the superior court and a petition to compel arbitration, stay proceedings, and vacate the Labor Commissioner’s order.  The trial court denied Fleming’s petition.  The court found Fleming waived its right to arbitration by taking steps inconsistent with an intent to invoke arbitration, including delaying its request to the court until after a full hearing took place and the Labor Commissioner issued its order. 

The Appellate Court’s Decision

The California Court of Appeal, First Appellate District affirmed the trial court’s ruling on the basis that Fleming waived its right to arbitration.  Although Fleming threatened to file a superior court petition to compel arbitration or stay the Labor Commissioner proceeding, it did not do so.  In addition, Fleming fully participated in the Labor Commissioner proceeding by presenting documentary evidence, witness testimony, and argument.  In light of Fleming’s repeated choice not to move to compel arbitration in the superior court, coupled with its full participation in the Labor Commissioner proceedings, the appellate court found that the trial court correctly determined that Fleming did not “properly invoke the right to arbitrate” by “taking affirmative steps to implement the process” and “participate in conduct consistent with the intent to arbitrate the dispute.”  The appellate court also agreed with the trial court that Fleming’s delay in seeking relief was “not reasonable” because Fleming waited for 20 months after Younan filed his Labor Commissioner complaint before finally filing a petition to compel arbitration in the superior court.

Conclusion

Fleming is an important reminder that the mere existence of an arbitration agreement does not guarantee that a dispute between the parties will be arbitrated.  Employers desiring arbitration must act quickly in asserting the right to arbitration and take affirmative steps to invoke the right, even when an employee asserts a claim in a forum other than the courts.  Employers must also refrain from participating in the non-arbitration proceeding (to the extent possible).  Finally, it is worth noting that the appellate court in Fleming did not reach a decision as to whether the arbitration agreement at issue was unconscionable.  Therefore, current arbitration agreements should be reviewed and updated by counsel to make sure they are valid and enforceable under applicable law.  (See OTO, LLC v. Kho (2019) 8 Cal.5th 111.)

Employers with questions regarding the implications of this case or arbitration agreements in general may contact the authors or their usual employment counsel at AALRR.

This AALRR publication 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. 

©2020 Atkinson, Andelson, Loya, Ruud & Romo

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