Former human resource director’s deceiving employer she had executed arbitration agreement neither implies agreement nor estops her from denying.

Posted in: Arbitration, Contract Law, Employment Law by Steven Vartabedian on

In Gorlach v. The Sports Club Company. B233672 (filed October 16, 2012), the Court of Appeal, Second Appellate District, Division Four, affirmed the trial court’s denying defendant’s motion to compel arbitration. While the defendant conceded that plaintiff never signed a written contract to arbitrate, defendant claimed equitable estoppel or implied-in-fact agreement.

Plaintiff Susan Gorlach resigned as defendant’s human resource director in August 2010. Prior to 2010, defendant had no arbitration agreement with its employees. It then revised its employee handbook to contain such an agreement and tasked plaintiff to get all employees to sign. Through July 2010, not all employees had signed, prompting plaintiff to write company executives to consider what to do about employees who failed to sign. She led executives to believe she had signed, when in fact she had not. She resigned August 6, 2010, and later sued defendant for constructive termination including a cause of action claiming paramour sexual harassment.

Defendant Sports Club moved to compel arbitration contending plaintiff assented to it by her continued employment, yet acknowledging that she had not executed the arbitration agreement. The trial court found that, while plaintiff “intentionally misled” defendant to believe she was “on board” with the new agreement, she never planned on signing it, thus there was no basis to find that an agreement to arbitrate existed between the parties.

Two issues were raised on appeal: whether plaintiff was estopped from denying the agreement, and whether there was an implied-in- fact agreement. On the matter of estoppel, the trial court had factually found that defendant had not relied to its detriment on Gorlach’s implied representations that she had signed the arbitration agreement. The appellate court agreed, noting, in particular, that defendant had not decided, as of the date of plaintiff’s resignation, what it would do if an employee refused to sign.

Regarding the question of an implied contract, the court pointed to Civil Code section 1621, which states that the existence and terms of such a contract would have to be “manifested by conduct,” which includes at its very heart a mutual intent to promise. The trial court’s finding that plaintiff “made a choice not to sign it” is directly contrary to any implication of her assent. The contract her stated that the employee must sign the agreement implying it was not effective until that employee did so, said the appellate court, in distinguishing this cases from one that was based on a communication unilaterally requiring arbitration. Under the present circumstances, the trial court could reasonably infer from plaintiff’s election not to sign the agreement that she did not intend to be bound by it.

In my view, this opinion illustrates how employers are between a rock and a hard place when it comes to gaining employee acquiescence to arbitration agreements. Other recent cases have come down hard on employers for using unconscionable efforts to gain execution of such agreements. Here, because the employer gave the employees a “choice,” an employee who misled the employer to believe that she had executed the agreement (absent a court finding of employer detrimental reliance) is able to avoid arbitration.

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