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Court of Appeal: Arbitration Agreements May Apply Retroactively

by D. Gregory Valenza | | May 13, 2019

Let’s say that an employee has been working for a business for 30 years or so, and then the employer issues an arbitration agreement.  Does it apply to claims that may have arisen before the agreement was signed? That’s one of the issues the Court of Appeal addressed in Salgado v. Carrows Restaurants, Inc. (Opinion here.)

The opinion is light on facts, so I’ll do my best with what we have.  Salgado started working at Carrows in 1984.  On December 7, 2016, Salgado signed an arbitration agreement with Carrows Restaurants, Inc. The arbitration agreement included broad language:

The Company and I agree and acknowledge that we will utilize binding arbitration as the sole and exclusive means to resolve all disputes which may arise out of or be related in any way to my application for employment and/or employment, including but not limited to the termination of my employment and my compensation.” 

The second provision provided, in relevant part, “Both the Company and I agree that any claim, dispute, and/or controversy that I may have against the Company . . . or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration . . . .” 

Salgado claimed that the arbitration agreement did not apply to claims that arose before she signed it.  The trial court agreed, and did not handle Salgado’s other arguments about the enforceability of the agreement.  The Court of Appeal disagreed with the trial court, providing employers with a fine opinion regarding the enforceability of arbitration agreements.  Here is some of the helpful language from the opinion:

An arbitration clause is a contractual agreement. Courts “interpret a contract to give effect to the parties’ intentions at the time of contracting.” (Hernandez v. Badger Construction Equipment Co. (1994) 28 Cal.App.4th 1791, 1814.) “When language in a contract is clear and explicit, that language governs interpretation.” (Esparza v. Sand & Sea, Inc. (2016) 2 Cal.App.5th 781, 789.) 

Arbitration is a favored procedure. An “ ‘ “arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” ’ ” (Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 397.) Doubts about the applicability of the arbitration clause to the dispute should be resolved “in favor of sending the parties to arbitration.” (Cione v. Foresters Equity Services, Inc. (1997) 58 Cal.App.4th 625, 642.) 

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Salgado focuses only on one phrase in the arbitration agreement. But the word “or” shows that there is an alternative. (Fiorentino v. City of Fresno (2007) 150 Cal.App.4th 596, 603 [“the plain and ordinary meaning of the word ‘or’ is ‘to mark an alternative such as “either this or that” ’ ”].) Each phrase must be considered. “ ‘Courts must interpret contractual language in a manner which gives force and effect to every provision, and not in a way which renders some clauses nugatory, inoperative or meaningless.’ ” (Hemphill v. Wright Family, LLC (2015) 234 Cal.App.4th 911, 915.) The second phrase following “or” broadly applies to “all disputes” related “in any way” to employment. This language is “clear and explicit.” (Esparza v. Sand & Sea, Inc., supra, 2 Cal.App.5th at p. 789.) Salgado’s current action is a dispute that falls within the meaning of this provision. 

Regarding the retroactivity argument, the Court rejected this contention. Rightly so, given that courts are more concerned about arbitration agreements signed before disputes arise (pre-dispute arbitration) than after:

the “contention that an agreement to arbitrate a dispute must pre-date the actions giving rise to the dispute is misplaced. Such a suggestion runs contrary to contract principles which govern arbitration agreements.” (Zink v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (10th Cir. 1993) 13 F.3d 330, 332.) “[A]n arbitration agreement may be applied retroactively to transactions which occurred prior to execution of the arbitration agreement.” (Merrill Lynch, Pierce, Fenner & Smith, Inc. v. King (M.D.Fla. 1992) 804 F.Supp.1512, 1514; Shotto v. Laub (D.Md. 1986) 632 F.Supp. 516, 522 [“whether plaintiffs signed the agreements before or after opening their accounts, or even before or after the claim arose, does not change the fact that they signed written agreements to arbitrate claims arising out of their account”]; see also Desert Outdoor Advertising v. Superior Court, supra, 196 Cal.App.4th at p. 877 [the broad language of the arbitration agreement applied to a dispute occurring before the signing of the arbitration agreement]; In re Currency Conversion Fee Antitrust Litigation (S.D.N.Y. 2003) 265 F.Supp.2d 385, 407 [the broad language – “ ‘any dispute, claim, or controversy . . . arising out of or relating to this Agreement, your Account . . .’ ” –required arbitration for claims plaintiff had prior to agreeing to arbitration].) 

So, the Court of Appeal had no trouble holding that this agreement’s broad language included claims that pre-dated Salgado’s signature.  That, however, is not the end of the story for Salgado and Carrows.  The Court did not order the case to arbitration. Instead, it sent the case back to the superior court to determine whether the agreement was enforceable on other grounds. First, the employee claimed she was represented by counsel when she signed the agreement to arbitrate, and that the lawyer did not have the opportunity to review the agreement.  Salgado also argued that the agreement was unconscionable. But the trial court exclusively relied on the “retroactive” issue. The Court did not decide whether either ground was a basis to deny enforcement, but rather sent the case to the trial court to make that determination. 

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