California Court of Appeal clarifies that defendants generally don’t have to initiate arbitration against themselves

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Contributors

While employees frequently sign arbitration agreements as part of their onboarding, when a grievance arises, they oftentimes either choose to ignore that agreement, or expect to challenge its enforceability and file suit instead. Employers are then forced to file a motion to compel arbitration to enforce that agreement. In this case, Arzate v. Ace American Insurance Company, the trial court granted the motion, enforced a class action waiver within the agreement, and stayed the action pending arbitration.

However, when neither party initiated the arbitration, the trial court found that the defendant had waived its right to arbitrate because it concluded, based on the terms of the Agreement, that the defendant (and not the plaintiff) needed to initiate the arbitration.

This is because the agreement said that the “party who wants to start the Arbitration Procedure should submit a demand…within 30 days from the court order,” and the trial court interpreted this to refer to the defendant, since the Plaintiff did not want to arbitrate and wanted, instead, to litigate the dispute in court.

However, the California Court of Appeal reversed the decision, and sided with the employer’s reasonable interpretation that the party with the claim – the plaintiff employee – is the one who “wanted” the arbitration since they wanted their dispute adjudicated and litigation was not an option. Accordingly, plaintiffs must generally be the ones to initiate the arbitration. Still, employers should contact employment counsel to review their arbitration agreements, particularly if they incorporate the rules of any arbitration providers such as JAMS or AAA (as did the arbitration agreement in this case) to ensure that there is no confusion about who is required to initiate the arbitration.