Court of Appeals Reverses Dismissal of Arbitration Agreement

The California Court of Appeal recently reversed a trial court’s ruling that an agreement to arbitrate contained in an employee handbook was unenforceable.

Background

Golden Queen Mining Company, LLC (Queen Mining) is a California company that operates the Soledad Mountain gold and silver mine in Mojave, California. Nelson was employed by Queen Mining from 2015 to October 2022. As part of the company's onboarding and orientation process, new employees are provided with written information and pamphlets, fill out various forms, and sign related acknowledgments. The documents provided to Nelson included Queen Mining's 31-page employee handbook dated 2015.

The employee handbook included an "ARBITRATION AGREEMENT" on pages 30 and 31. Its first paragraph stated that, with certain exceptions, the employee and Queen Mining agreed to submit any dispute regarding employee's employment to binding arbitration pursuant to the FAA, if applicable, or the California Arbitration Act. Reiterating aspects of this provision, the arbitration agreement's fifth paragraph stated: "Employee and Company agree that arbitration shall be the exclusive forum for resolving all disputes arising out of or involving the employee's employment with Company.”

One exception to arbitration in the first paragraph was for "any wage and hour matter within the jurisdiction of the California Labor Commissioner.” The fifth paragraph used additional language and stated exempt claims included "any wage and hour matter within the jurisdiction of (and pursued with) the California Labor Commissioner.”

The arbitration agreement stated the dispute would be submitted to arbitration "within one year of the date the dispute first arose, or within one year of the termination of employment, whichever occurs first; provided, however, that if the employee's claim arises under a statute providing for a longer time to file a claim, that statute shall govern." The arbitration agreement also stated:

The employee "waives the right to pursue claims in a class action capacity";
Nothing it contained modified or altered Queen Mining's policy of at-will employment;
The arbitration "section shall survive the termination of the employee's employment"; and
Any portion of the arbitration agreement deemed unconscionable "shall be severed, but all remaining portions shall remain in full force and effect."

Page 32 of the employee handbook is a handbook acknowledgment. "Seth Robert Nelson" is handwritten on the acknowledgment's employee name line, "Seth Nelson" appears in cursive handwriting on the signature line, and "11-17-15" is handwritten on the date line. Nelson didn’t dispute that he signed this.

Class Action Filed

In May 2023, Nelson filed a class action complaint against Queen Mining in the Superior Court of Kern County alleging failure to pay minimum wages, pay overtime compensation, provide meal periods, authorize and permit rest periods, indemnify employees for expenses incurred in performing their jobs, pay all wages due upon termination, and provide accurate itemized wage statements. The complaint also alleged these failures constituted unlawful business acts and practices in violation of the Unfair Competition Law.

In August 2023, Queen Mining filed a motion to compel arbitration with three supporting declarations. The declaration of Queen Mining's human resources manager asserted that on November 17, 2015, Nelson signed a handbook acknowledgment and attached a copy of the signed acknowledgment as an exhibit. The declaration's other exhibits included the orientation checklist initialed by Nelson; the 2015 employee handbook containing the arbitration agreement; the emergency information form; the corporate governance document; and the drug and alcohol policy acknowledgment.

Nelson's opposition to the motion asserted no contract to arbitrate had been formed and, if formed, it was unenforceable. He argued the following:

There were ambiguities in the employee handbook and the purported arbitration agreement imply no agreement exists;
The acknowledgment he signed said nothing in the handbook created contractual obligations, express or implied;
The ambiguous acknowledgment should be construed against Queen Mining, its drafter;
The exception in the arbitration agreement for matters within the Labor Commissioner's jurisdiction should be construed against the company Mining; and
The purported arbitration agreement was unconscionable because of its time limits for pursuing a claim.

Nelson's opposition papers didn’t include any declaration or other evidence contradicting the declarations submitted by Queen Mining. Also, he made no evidentiary objections to the statements made in Queen Mining's declarations.

Queen Mining asserted Nelson signed an acknowledgment that unambiguously assented to the arbitration agreement, noted Nelson didn’t present any evidence to support his arguments, and that it was unreasonable to interpret the arbitration agreement as excluding wage and hour claims that could’ve been pursued in court. Alternatively, the company argued that, if the arbitration agreement was ambiguous as to its scope, the applicable public policies supported resolving that ambiguity in favor of arbitration. Thus, Queen Mining concluded that, under the FAA, the trial court was required to order Nelson's individual claims to arbitration and dismiss the purported class claim.

In August 2023, the trial court held a hearing on the motion to compel arbitration. The court subsequently denied the motion based on its determination that Queen Mining failed to demonstrate the existence of an executed arbitration agreement. Queen Mining appealed.

The Appellate Court Reverses

The Court of Appeal disagreed with the trial court’s conclusion, finding that the agreement was separate from the handbook’s guidelines and therefore, enforceable. The court explained that although both the arbitration agreement and the handbook’s guidelines appeared in the same acknowledgment, they weren’t part of the same contractual framework.

Citing a 2012 decision, Judge Donald R. Franson, Jr. wrote that “[a]lthough federal policy favors arbitration agreements, it is a cardinal principle that arbitration under the FAA is a matter of consent, not coercion.”

The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. Here, the parties disputed whether the phrase "the guidelines contained in the Handbook" used in the handbook acknowledgment was reasonably interpreted to include the arbitration agreement contained in the handbook. Consequently, the judge analyzed the meaning of the word "guidelines,” which wasn’t defined in either the handbook or the acknowledgment. Judge Franson found a distinction between the terms “guidelines” and “arbitration agreement.” Franson and the panel noted that the "guidelines" in the handbook referred to general policies, which weren’t intended to create enforceable contractual obligations. However, the arbitration agreement was “separate and distinct,” not an “overlapping concept.” It was aimed at resolving disputes through arbitration. Judge Franson noted that the separation of the two provisions within the acknowledgment made it clear that the arbitration agreement wasn’t part of the “guidelines” contained in the employee handbook, stating that “the acknowledgment's third and fifth paragraphs are easily harmonized by interpreting the word ‘guidelines’ to exclude the arbitration agreement.”

As such, the Court of Appeal reversed the trial court’s order denying the motion to compel arbitration and remanded the case for the trial court to resolve the question of whether the agreement was unconscionable. Nelson v. Golden Queen Mining Co. (California Court of Appeal, 5^th Appellate District, 1/7/25).

Takeaway

The Nelson case is a victory for employers looking to enforce arbitration agreements—especially those in which these types of agreements are included in employee handbooks. Notwithstanding, the case provides instruction to employers in California about the significance of drafting clear and distinct language in arbitration clauses and employee acknowledgment forms. It’s a good reminder that it’s best to create and present a separate arbitration agreement when onboarding employees.