An arbitration agreement required the plaintiffs to initiate arbitration proceedings, not the employer, according to a California appellate panel, reversing an order that sent the case to court.
A group of five plaintiffs sued ACE American Insurance Company, alleging they were misclassified as exempt employees in violation of the state labor code.
ACE moved to compel arbitration pursuant to agreements that the plaintiffs had signed as a condition of their employment.
The agreement consisted of three parts. The first document stated that the employee agreed to arbitration in lieu of going to court. The second document explained the scope of arbitration in more detail, including that "[a] party who wants to start the [a]rbitration [p]rocedure should submit a demand within the time periods required by applicable law."
It also explained who would pay for the cost of arbitration and set a 30-day deadline in the case of a court-ordered arbitration for the demand to initiate be filed.
The third contained a policy that stated the arbitration rules and procedures generally follow the American Arbitration Association's Employment Arbitration Rules and Mediation Procedures.
Granting the motion to compel arbitration and staying the litigation, the trial court did not address who was to commence the proceedings.
After 30 days had passed, the plaintiffs filed a motion to lift the stay in the case, arguing that ACE was required to initiate the arbitration process but failed to do so within the agreement's 30-day time period and had therefore waived its right to arbitration.
The trial court agreed, but the appellate panel reversed.
Looking to the language of the agreements, the plaintiffs told the court that ACE was the only party that wanted arbitration – the employer filed a motion to compel arbitration, whereas the plaintiffs always preferred to remain in court and resisted arbitration.
But the court said the plaintiffs' interpretation of the agreements erred by considering provisions in isolation without construing the whole of the agreement.
The language regarding the party that "wants" or "demands" arbitration occurs in the context of an agreement by the plaintiffs, "in the event [they] have any employment related legal claims, [that they] will submit them to final and binding neutral third-party arbitration."
"In this context, the phrase 'want[ing] to start the [a]rbitration [p]rocedure' cannot refer to a preference for arbitration over litigation because the parties already ruled out litigation as an option in any dispute governed by the arbitration agreement," the court explained. "Instead, where the only option for addressing a dispute is in arbitration, 'want[ing] to start the [a]rbitration [p]rocedure' means a desire to seek redress for an employment related legal claim. In other words, it must refer to an action by a plaintiff."
ACE arguably could have used different language in the arbitration rules and procedures to underscore this point, the court noted, but the document appeared to be written with a minimal amount of legalese for the benefit of employees without legal training.
"Read in the context of the entire agreement, the colloquial language shows that the plaintiffs were the party that 'want[ed] ... [a]rbitration,' and that they were required to file a demand to initiate the process given their agreement that they would 'submit' their employment related claims to arbitration," the court said.
Additional support for ACE's position came from the AAA Rules, which provide that arbitration may be initiated either jointly or by an "initiating party," which the rules refer to as the "claimant."
The plaintiffs also contended that by failing to initiate arbitration, ACE acted unconscionably and effectively blocked every forum for redress.
"But nothing apart from the plaintiffs' own inaction has prevented the case from moving forward," the court wrote. "The 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."
The court reversed the trial court's order.
To read the opinion in Arzate v. ACE American Insurance Company, click here.
Why it matters: The California appellate court found the arbitration agreements clear: the language concerning the "party who wants to start the [a]rbitration [p]rocedure" referred to the party that wants to assert a legal claim governed by the arbitration agreements – in this case, the plaintiffs.
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