Plaintiffs Are Responsible for Commencing Court-Ordered Arbitration

Seyfarth Synopsis: The California Court of Appeal held that after the employer-defendant successfully moved to compel arbitration of the plaintiffs’ employment-related claims, the employer-defendant did not waive its right to arbitration by failing to commence arbitration. The fact that the employer was the only party that “wanted” arbitration was irrelevant. The arbitration agreement required the plaintiffs to initiate arbitration, which they failed to do. Michelle Arzate, et al. v. ACE American Insurance Company, Case No. B336829.

The Facts

Plaintiffs Michelle Arzate, Anthony Esquivel, Charleston Princeton, James Kang, and David Block filed a class action complaint asserting various wage and hour claims against their employer, ACE American Insurance. As a condition of their employment, the employees signed an arbitration agreement with ACE. Accordingly, ACE moved to compel arbitration of the employees’ claims. The trial court granted ACE’s motion and stayed the case pending the completion of the arbitration.

The parties’ arbitration agreement stated “[I]n the case of a court ordered arbitration, the demand for arbitration must be filed in accordance with these rules and procedures within thirty (30) calendar days from the date of entry of the court order or such other time period as determined by the court.” Accordingly, in granting the motion to compel arbitration the trial court ordered that the parties needed “to submit a joint statement by September 8, 2023, confirming that an arbitrator has been selected and notifying the [c]ourt of the arbitration hearing date and the date of anticipated completion.” The trial court did not, however, order either party to commence the arbitration. Thirty days after the court’s order, neither party had initiated arbitration.

The Trial Court Decision

Several months after the parties were ordered to arbitration, the employees filed a motion in the trial court to lift the stay, arguing that ACE was required to initiate the arbitration process per the arbitration agreement but failed to do so. The trial court agreed, lifting the stay and finding that ACE’s inaction “was inconsistent with its right to arbitrate,” thereby breaching the arbitration agreement. ACE appealed this decision.

The Appellate Court Decision

The California Court of Appeal reversed the trial court, holding that the employees, not ACE, were required to initiate the arbitration.

Recognizing that the trial court did not order which party was required initiate arbitration, the Appellate Court reviewed the specific language of the parties’ arbitration agreement. The employees focused on the language of the arbitration agreement that stated that the party who “wants” to commence the arbitration needed to do so within thirty days. The employees argued that they did not “want” arbitration, only ACE did, and, therefore, ACE failed to comply with the agreement’s terms, thereby waiving its right to arbitration.

 The Court of Appeal disagreed, reasoning that the employees’ interpretation of the agreement was too narrow. Instead, the Court of Appeal looked at the agreement as a whole and found that it was directed towards the party wanting to assert claims related to the employment relationship. In other words, while the Plaintiffs did not “want” arbitration, they did “want” to initiate claims relating to their employment and, therefore, were the parties responsible for initiating arbitration.

Separately, the Court of Appeal also noted that the arbitration agreement incorporated the American Arbitration Association’s Employment Arbitration Rules and Mediation Procedures, which directly refers to the “claimant” as the initiating party. Therefore, it was clear that because the employees had initiated the lawsuit, they needed to initiating arbitration.

Accordingly, the Court of Appeal reversed the trial court’s order staying the case. In doing so it stated “[t]he reason this case has not proceeded in arbitration is that the plaintiffs have thus far declined to pursue it there. We now make clear that it is the plaintiffs who must prosecute their case, including submitting a demand as specified in the arbitration agreements, so that it may proceed.”

What Arzate Means for Employers

Although the Court of Appeal’s decision makes clear that employers need not commence arbitration following the granting of a motion to compel that process, employers may want to consider modifying their arbitration agreements to clearly state who must initiate arbitration and how they must do so. Furthermore, in the event that a plaintiff wishes to avoid arbitration but is compelled to do so by a trial court, the party compelling arbitration should clarify with the trial court who must commence arbitration (though, it should be the plaintiff) to avoid any uncertainty.