The Ninth Circuit Court of Appeals held in Brown v. Dillard’s, Inc., No. 03-56719 (Dec. 6, 2005), that when an employer enters into an arbitration agreement with its employees, it must itself participate in properly initiated arbitration proceedings or forgo its right to compel arbitration at a later time.

The Court addressed a motion to compel arbitration filed by Dillard’s Inc., seeking to enforce a mandatory arbitration agreement with former employee, Stephanie Brown.  Ms. Brown was terminated for allegedly falsifying her time card.  She challenged her termination under the arbitration agreement by properly filing and serving a notice to arbitrate.  Dillard’s refused to arbitrate the dispute, believing that Brown’s claim was without merit.  Brown then filed a lawsuit in a California state court alleging a variety of wrongful termination-type claims.  Dillard’s responded by removing the case to federal court and moving to compel arbitration under the arbitration agreement.

The trial court denied Dillard’s motion to compel because it found the arbitration agreement unconscionable and unenforceable.  While the Ninth Circuit Court noted “misgivings” about the agreement, it declined to determine whether the agreement was enforceable in California.  Instead, the Court held that because Dillard’s breached the arbitration agreement by refusing Brown’s proper arbitration demand, it could not later compel Brown to arbitrate her claims.  The Court explained that any other result would provide employers an incentive to ignore arbitration claims brought by employees in the hope that the employees would become frustrated and simply abandon their cases.

This holding demonstrates that an employer who chooses to employ arbitration agreements must be willing to arbitrate all proper claims — without regard to merit — and abide by the established procedures set forth in the agreement.  In order to ensure proper compliance with such important agreements, employers should be cautious to ensure that one central department and/or decision maker reviews and responds to all demands for arbitration.

To review this decision in its entirety, please visit the following link:

http://caselaw.lp.findlaw.com/data2/circs/9th/0356719p.pdf