November 2021

Employment arbitration agreements continue to be a hot button issue in California. We recently highlighted a ruling by the Ninth Circuit that upheld AB 51, California’s ban on mandatory employment arbitration agreements. While the AB 51 decision was bad news for employers, the newly decided Martinez-Gonzalez v. Elkhorn Packing Co. LLC provides some relief.

The representative plaintiff in the Elkhorn Packing case was a former farm laborer who worked for Elkhorn Packing Company (“Elkhorn”), a farm labor contractor. The plaintiff brought a class action claim for wage and hour violations. Elkhorn moved to compel arbitration and the trial court held a two-day bench trial on the issue of arbitration. Following the trial, the court made the following factual findings:

• Elkhorn hired the plaintiff while he was living in Mexico.
• Elkhorn assisted the plaintiff in securing an agricultural visa.
• Elkhorn transported the plaintiff from Mexico to northern California to work.
• A few days after starting work, the plaintiff, along with 150 other workers, met with Elkhorn representatives in a hotel parking lot where the workers were being housed.
• Elkhorn representatives directed employees to stand in line for up to 40 minutes in order to sign employment paperwork.
• The paperwork was in Spanish.
• The paperwork included an arbitration clause.
• Elkhorn representatives did not explain the contents of the arbitration agreement to the plaintiff, did not give him a copy of the agreement, and did not tell him to consult an attorney before signing.
• The plaintiff did not ask for a copy of the agreement, did not ask to consult an attorney before signing, and did not read the agreement before signing.
• Elkhorn never told the plaintiff that he had to sign the agreement to keep working for the company.
• The plaintiff worked the 2016 season and returned for the 2017 season. He signed an arbitration agreement against in 2017.

The trial court concluded that the arbitration agreement resulted from undue influence and economic duress. Elkhorn appealed and, in a somewhat surprising decision, a panel on the Ninth Circuit reversed and remanded.

The appellate court started by acknowledging that arbitration agreements, like other contracts, may be unenforceable if signed under economic duress or undue influence. The burden of establishing economic duress or undue influence is on the party seeking to invalidate the agreement and the burden is high.

A party claiming economic duress must show that the other party engaged in a “wrongful act” which are acts that make a “mockery of freedom of contract and undermine the proper function of our economic system.” While the appellate court acknowledged that the “circumstances surrounding the signing of the agreements were not ideal” the circumstances did not make a mockery of the freedom to contract. There were legitimate business reasons why the orientation was held in the parking lot of the hotel as the workers were housed at the hotel and it was a central location to meet with the large number of workers. There was no evidence that Elkhorn threatened to withhold wages if the plaintiff did not sign the agreement.

The plaintiff also could not demonstrate duress because there were reasonable alternatives available to him. The plaintiff did not inquire if he would lose his job if he did not sign the arbitration agreement, no Elkhorn representative told him he would lose his job if he did not sign, and the agreement itself did not say that it was mandatory. The plaintiff only assumed the agreement was mandatory. Importantly, the agreement also included a provision allowing the plaintiff to revoke the agreement within ten days of signing.

Similarly, the appellate court found that the plaintiff had failed to demonstrate facts sufficient to support a finding of undue influence. The plaintiff failed to prove that he was a susceptible individual. Though the plaintiff was from a different country, he had a secondary-school education and had been working and supporting a family for years. The plaintiff also failed to show that Elkhorn exerted excessive pressure on him. There was no evidence that Elkhorn pressured the plaintiff to sign the agreement immediately. The plaintiff did not ask for time to review or ask if an attorney could read the agreement before signing.

The Elkhorn decision is important because it supports the high burden to invalidate an arbitration agreement based on claims of duress or undue influence. It should be noted, however, that the trial court initially found that the plaintiff had met his burden of demonstrating economic duress and undue influence. Employers, therefore, should be cautious and take steps to minimize potential arguments of duress and undue influence. For example, because AB 51 bars mandatory arbitration agreements, employers should clearly state that employees are not required to sign the arbitration agreement. The agreement itself should also include similar language. Employers should provide employees with time to review the agreement and provide a copy if the employee would like to review the agreement with counsel. Employers should also clearly state that it will not retaliate against employees who refuse to sign arbitration agreements.

 

For more information contact:

Matthew Wallin

 

mwallin@gibbsgiden.com

(310) 552-3400

Matthew Wallin is a senior associate in the Los Angeles office where he practices labor and employment law.  He has extensive experience defending private business and public entities in litigation and advising clients on labor compliance issues.  

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