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This column is intended to provide general information and does not constitute legal advice in any individual case. Since facts differ in each specific situation, you should seek the advice of an attorney or other employment law expert.
Jenna H. Leyton, Esq., Pettit Kohn Ingrassia & Lutz PC
California Court Clarifies Employer and Employee Rights With Respect to Arbitration Agreements
In Zamora v. Lehman, a California Court of Appeal helped clarify employer and employee rights with respect to arbitration agreements. Specifically, the Court held that: 1) the right of a party to compel arbitration is barred by that party engaging in discovery; and 2) parties are permitted to contract around the applicable statutes of limitation in order to amend the timeframe within which claims must be brought.
Stephen C. Lehman ("Lehman"), Eric R. Weiss ("Weiss"), and Daniel M. Yukelson ("Yukelson") were executives at e4L, Inc. ("e4L"), a direct marketing company responsible for nationally broadcasting over 300,000 "infomercials" each week. Following a series of business transactions facilitated by Lehman, Weiss, and Yukelson, e4L declared bankruptcy on March 5, 2001. While the improper acts and omissions of the executives were discovered on November 22, 2002, e4L's bankruptcy trustee, Nancy Hoffmeier Zamora ("Zamora"), did not file suit against the men until December 19, 2005.
Pursuant to the arbitration clause in each of their employment agreements, Lehman, Weiss, and Yukelson moved to compel arbitration in late 2007. While Zamora argued that the motions were temporally barred, all three executives argued that they had forgotten about the existence of the arbitration clauses and, therefore, their delay in moving to compel was justified. The trial court agreed with Lehman, Weiss, and Yukelson and granted all three motions. The Court of Appeal, however, ruled that Lehman and Weiss had already engaged in discovery and thereby waived their right to compel arbitration. Yukelson, on the other hand, had chosen to pursue settlement rather than engage in discovery. Thus, his right to compel arbitration was not waived. Given this analysis, the Court of Appeal overturned the trial court's decision with regard to Lehman and Weiss.
Each of the executives' employment agreements also included a clause requiring the claimant to present the claim in writing to the respondent within one year of the date claimant knew, or should have known, about the circumstances giving rise to the claim. Based on Zamora's multi-year delay in notifying Lehman and Weiss of the corporation's claims against them, both executives filed motions for summary judgment. While Zamora argued that the clause conflicted with the four year statute of limitations, the Court of Appeal affirmed the trial court's decision, holding that the parties had a legal right to contractually shorten the timeframe within which a claimant must notify the respondent of the claim. Thus, summary judgment was affirmed in favor of Lehman and Weiss.
The Zamora decision offers two lessons for California employers. First, in the event an employer becomes embroiled in litigation, it should seek to enforce a contractual arbitration agreement immediately and certainly before the commencement of discovery. Second, employers may be able to contractually shorten the window of time within which employees must bring claims, but should proceed with caution when doing so in light of previous California precedent limiting or prohibiting this practice.