Employer Fired Employee Hours After He Signed Arbitration Agreement – How Much More Do You Need to Know?
Plaintiff Ruzanno instituted arbitration proceedings against defendants Spectrum, Larson, Blake, and National University. The salient fact in this case is that Ruzanno signed the arbitration agreement hours before the employer fired him, purportedly without his knowing the employer believed his performance was substandard.
Above: The coming of the cat. Udo J. Keppler. 1911. Library of Congress.
When Ruzzano learned during the course of arbitration that Spectrum had been secretly planning "adverse employment action against him" even before his signing the arbitration agreement, he withdrew from the arbitration, and filed a lawsuit. Defendants responded by filing a petition to compel arbitration. Ruzzano opposed, and the trial court denied the petition to compel arbitration, finding that "[t]he preponderance of the evidence demonstrates no valid arbitration agreement exists because it was procured by deceit on the same day [Ruzzano] was placed on administrative leave." Ruzzano v. Spectrum Pacific Learning Company, LLC, Case No. D059377 (4th Dist. Div. 1 April 24, 2012) (not for publication)(authored by Nares, J.).
The Court of Appeal agreed with the trial court. The legal principles here are straightforward. An arbitration clause may be rescinded for fraud. Fraud includes intentional concealment or nondisclosure of material facts which induce an innocent party to enter into a contract. Civ. Code §§ 1571-1574; Odorizzi v. Bloomfield School Dist., 246 Cal.App.2d 123, 128 (1966). The proponent of arbitration has the burden of showing that the arbitration a valid arbitration clause – a burden that was not met here.
A couple loose ends needed to be tied up. Ruzanno was suing upon the employment contract that he was seeking to rescind. But the court brushed that aside, explaining that he was not required to rescind the employment agreement as a whole – severance could apply to invalid or unenforceable clauses.
Hadn't Ruzzano waived the right to file a lawsuit, by commencing arbitration? Nope. "Where a party first discovers the basis to oppose arbitration after proceedings commence, it may withdraw from the proceedings and commence litigation." (quoting Knight et al., Cal Practice Guide: Alternative Dispute Resolution (The Rutter Group 2010), 5:77, p. 5-59.)
Result: Affirmance.
Moral: It’s better for the employer to enter into an arbitration agreement at the time of hiring, rather than hours before firing.
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