In Gorlach v. The Sports Club Co., Case No. B233672 (2nd Dist. Cal. Ct. App. Oct. 16, 2012), the California Court of Appeal denied the defendants’ motion to compel arbitration, finding that there was no evidence that the plaintiff agreed to be bound by the company’s arbitration provision.

In this case, the plaintiff, Susan Gorlach, had worked for Sports Club as the company’s human resources director.  During her employment, Sports Club had tasked the plaintiff with presenting to the company’s employees an amended employee handbook, which, unlike previous versions of the company’s employee handbook, contained an arbitration provision.  The plaintiff was responsible for collecting signatures to the arbitration agreement.

The arbitration provision stated in relevant part: “The Sports Club Company, Inc. (‘Company’) and I agree to the resolution by arbitration of all claims, disputes, and/or controversies (collectively ‘claims’), whether or not arising out of my employment (or its termination), that the Company may have against me or that I may have against the Company or against its partners, owners, employees or agents, in their capacity as such or otherwise.”  It concluded: “I acknowledge that I have carefully read this Agreement, that I understand its terms, that all understandings and agreements between the Company and me relating to the subjects covered in the Agreement are contained in it, and that I have entered into the Agreement voluntarily and not in reliance on any promises or representations by the Company other than those contained in this Agreement itself.  I understand that by entering into this Agreement, the Company and I have both waived our right to a jury trial and our right to appeal with respect to all claims covered by this Agreement.”

The plaintiff never signed the arbitration agreement.  However, she led the company to believe that she had signed it, including by telling company management that all corporate employees had signed the arbitration agreement except four–without identifying that she was one of them.

A few months later, the plaintiff quit working for the company and filed a lawsuit against the defendants, alleging causes of action for wrongful termination, retaliation, paramour sexual harassment, intentional infliction of emotional distress, defamation, breach of contract, and negligence.  The company moved to compel arbitration of the plaintiff’s claims, arguing that even though the plaintiff did not sign the arbitration agreement, she should be bound by it because (1) she led the company to believe she signed it, and therefore should be equitably estopped from claiming that the agreement did not apply to her, and (2) she impliedly agreed to be bound by the agreement because she continued working for the company despite knowing that the company had amended its policies to require arbitration of all claims arising during the course of employees’ employment.

As to the defendants’ equitable estoppel argument, the Court stated that “[t]he essence of an estoppel is that one has, by false statements or conduct, led another to do that which he would not otherwise have done and as a result the other has suffered injury.”  Based on this rationale, the Court held that because there was no evidence that the defendants would have fired the plaintiff for not signing the agreement, “there was no detrimental reliance by Sports Club and, hence, no equitable estoppel.”

As to the defendants’ implied-in-fact contract argument, the Court explained that “California law permits employers to implement policies that may become unilateral implied-in-fact contracts when employees accept them by continuing their employment.” But here, the Court determined that “the employee handbook did not purport unilaterally to impose an arbitration agreement on its employees; instead, it urged employees to agree to submit to arbitration and to sign a representation that ‘I have entered into the Agreement voluntarily.’ . . . Rather than unilaterally imposing an arbitration requirement, the handbook told employees that, ‘As a condition to employment, all Team Members must sign the Mutual Agreement to Arbitrate Claims.’ (Italics added.)  In other words, the handbook told employees that they must sign the arbitration agreement, implying that it was not effective until (and unless) they did so.  Because Gorlach never signed the arbitration agreement, we cannot imply the existence of such an agreement between the parties.  Under these circumstances, the Court held that the “trial court properly inferred from Gorlach’s election not to sign the arbitration agreement that she did not intend to be bound by it.”

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Bernstein & Friedland, P.C. is a boutique employment law firm in Los Angeles specializing in wrongful termination, discrimination, harassment, retaliation, and unpaid wage and overtime matters.  Please visit our website at www.laemploymentcounsel.com to learn more about us.

Polina Bernstein

Polina Bernstein

Polina Bernstein founded Bernstein & Friedland, P.C. in 2009 and is lead litigation counsel at the firm.

Diana Friedland

Diana Friedland

Diana Friedland is a partner at Bernstein & Friedland, P.C. Her practice focuses on employment litigation and counseling.

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