Employment Law: First District Holds Party to Arbitration Agreement
May Not Compel Arbitration Where its Litigation Conduct was Contrary to Right to Demand Arbitration
In Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035 [2015 DJDAR 61], California’s First District Court of Appeal upheld the trial court’s finding that plaintiff’s employer, Inter-Con, waived its right to compel arbitration by engaging in litigation conduct inconsistent with the right to demand arbitration. The litigation concerned a punitive wage and hour class action filed by plaintiff Brian Bower. In concluding the trial court’s finding of arbitration waiver was supported by substantial evidence, the appellate court affirmed the lower court’s order denying the petition to compel. Bower, who was employed by Inter-Con as an armed security officer until termination in 2011, executed an initial arbitration agreement when his employment began, agreeing to submit all disputes with Inter-Con to arbitration. The employment agreement expressly covered claims for compensation and wages. A second employment agreement executed by Bower in 2008, a year after the original agreement was executed, superseded the first agreement and contained a clause preventing Bower from asserting claims against Inter-Con on behalf of a class or in a representative capacity. It also specified that the parties agreed to arbitrate break and rest period claims.
In noting that a party seeking to prove waiver of the right to arbitration must demonstrate (1) knowledge of an existing right to compel arbitration, (2) acts inconsistent with that existing right, and (3) prejudice to the party opposing arbitration, and further noting that because the law favors arbitration, waiver will not likely be inferred, and that a party asserting the waiver “bears a heavy burden of proof” with all doubts to be resolved in favor of arbitration, the appellate court observed that instead of filing a petition to compel arbitration at the outset, Inter-Con filed an answer to the complaint, responded to Bower’s written discovery, and propounded its own written discovery on Bower. Class-wide settlement discussions were also pursued. Inter-Con was clearly aware of its right to compel arbitration from the outset, based on its assertion of same in its answer to the complaint and in its responses to Bower’s discovery. The fact that Inter-Con propounded class-wide discovery was also inconsistent with its right to compel arbitration and that the arbitration would be limited to Bower’s individual claims.
Ultimately, the appellate court concluded that Inter-Con failed to file a timely petition to compel arbitration at the outset of the case, and that the delay appears to have been tactical and was unreasonable and unexcused; and concluded that “In light of our duty to defer to the trial court’s factual findings, we cannot say as a matter of law that Bower suffered cognizable prejudice.” Id. at 66.
One important lesson for employers based on this recent First District Court of Appeal case is to assert and vigorously pursue the right to compel arbitration at the outset of an employment claim subject to an arbitration agreement and to avoid initiating proceedings and discovery inconsistent with the asserted arbitration right.