Electronically Signed Arbitration Agreements May Be Unenforceable

What happens when an employee signs an arbitration agreement using their mobile device and later claims they did not knowingly sign the arbitration agreement because they were not previously told about it? Well, according to the California Court of Appeal in Hasty v. American Automobile Association of Northern California, Nevada & Utah, the agreement might be unenforceable.

We review this decision for the insightful considerations employers should take note of if they hope to continue to enforce electronically signed arbitration agreements.

Aljarice Hasty was interviewed and verbally offered a job with the American Automobile Association (“AAA”). AAA did not tell Hasty she was required to sign AAA’s arbitration agreement during these conversations. Hasty accepted the job and resigned from her then-current job. Subsequently, Hasty received an email from AAA with instructions to review and sign onboarding paperwork, including AAA’s arbitration agreement, via Workday, before her first day. Hasty’s offer letter, on the other hand, stated that she would be required to sign AAA’s arbitration agreement “on the first day of her employment.”

Having no computer or tablet, Hasty used her mobile phone to view and sign the documents, including, apparently unbeknownst to her, AAA’s arbitration agreement. Also, during her employment, Hasty received two employee handbooks that referenced arbitration.

Hasty later sued AAA for discrimination, harassment, retaliation, and wrongful discharge. AAA moved to compel arbitration pursuant to the arbitration agreement that Hasty electronically signed. While the trial court found there was a valid arbitration agreement, it nonetheless found that it was unconscionable and therefore unenforceable. AAA appealed but the Court of Appeal agreed with and affirmed the trial court’s ruling.

What Went Wrong?

The Court of Appeal held that by applying the “sliding scale” of unconscionability, the agreement was both procedurally and substantively unconscionable.

Laden With Surprises, Arbitration Agreement Was Procedurally Unconscionable

Contracts of adhesion, or, mandatory arbitration agreements, as the Court of Appeal found here, are not per se procedurally unconscionable, and instead are problematic only if they also have elements of oppression or surprise.

In concluding there was no oppression, the Court of Appeal found that Hasty had time to review the arbitration agreement (five days), consult with an attorney if she elected, and that there is no evidence to suggest that Hasty lacked the education or experience to review the employment paperwork.

On the other hand, the Court of Appeal found the arbitration agreement riddled with surprise:

• Hasty and AAA disagreed over the size of the font, with Plaintiff estimating it was 8.5-point font on her phone at the time she reviewed it and AAA stating it was 11-point font printed.
• The Court of Appeal found the paragraphs dense, spanning two single-spaced, letter-size pages filled with statutory references and legal jargon.
• Hasty was only offered the opportunity to review and sign the arbitration agreement electronically, was never asked whether she could view the documents electronically, nor were any alternatives provided or offered.
• The offer letter stated that Hasty would review and sign the arbitration agreement on her first day of employment, which did not occur, as it was before her first day as the separate email instructed.
• An employee could click “I Agree” without first viewing the arbitration agreement— and no instructions on how to view it.
• The signature statement vaguely referred to a “document.”

Thus, the agreement had a high degree of procedural unconscionability.

Multiple One-Sided Provisions Were Substantively Unconscionable

The Court of Appeal also found the agreement was substantively unconscionable due to its multiple one-sided provisions:

• A “hidden” waiver of remedies and relief from a charge or complaint filed with a governmental administrative agency, as these are the types of complaints brought by an employee.
• Requiring a confidential arbitration, as it may:
  • Impede informal discovery, making it more costly for employees;
  • Prevent employees from using findings in prior arbitrations or prove a pattern of discrimination, harassment, and/or retaliation;
  • Discourage employees from pursuing claims.
• Waiver of representative claims, as it requires an employee to waive a right that is not waivable—even though Hasty did not file a collective or representative claim, like the Private Attorneys General Act (“PAGA”).

Severance Could Not Save the Arbitration Agreement

While courts may sever unconscionable provisions, this Court refused to do so because it found the agreement was permeated by unconscionability.

Lessons Learned

In light of the Hasty decision, California employers should consider the following:

• Maintain consistency in all stages of onboarding, from verbal representations to the presentation of onboarding documents.
• If you choose to electronically provide the arbitration agreement, let the employee know that there will be important documents, including an arbitration agreement, for their review and signature, and inquire whether they have access to a computer.
• Make employees aware of alternatives, such as:
  • Picking up a physical copy;
  • Emailing a stand-alone copy; or
  • Sending a hard copy via mail.
• Utilize software that requires an employee to view the document before signature.
• Lastly, the signature page should make clear that the user is signing and agreeing to an arbitration agreement.

Conclusion

A carefully drafted arbitration agreement and thoughtful implementation of procedures in its dissemination will help California employers continue to enforce valid arbitration agreements. If you have any questions about this e-alert or how the Hasty ruling may impact your arbitration agreement, please contact Guillermo Tello (gtello@ClarkHill.com), Monique Eginli (meginli@clarkhill.com), or another member of Clark Hill, LLP’s California Labor and Employment Practice Group.

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