California Court Finds Arbitration Agreement Invalid and Unenforceable as a Result of Economic Duress and Undue Influence 

Arbitration highlighted

From JDSupra, Nora Valenza-Frost discusses a recent case in which the court said that an arbitration was unenforceable because of economic distress and undue influence. Nora writes:

The plaintiff, an agricultural laborer, brought suit against his employer who, in turn, moved to compel arbitration based on the arbitration agreement in the parties’ employment contract. The plaintiff opposed, successfully arguing that the arbitration agreement should not be enforced because of economic duress and undue influence.

The court found that all the elements of economic duress were met: (1) a sufficiently coercive wrongful act on the part of the defendant (the arbitration agreement was provided to the plaintiff after he had arrived in California and living in employer-controlled housing); (2) no reasonable alternative on the part of the plaintiff (the plaintiff was in possession of an H-2A visa obtained with the help of the defendants, believed he was only permitted to work for the defendants and had already begun working for the defendants); (3) knowledge of the plaintiff’s economic vulnerability (the defendants acknowledged that employees like the plaintiff often were the sole financial earners in their families); and (4) actual inducement to contract (the plaintiff was in a challenging financial situation with very few financial resources available to him, and no reasonable worker in his shoes could have refused to sign the arbitration agreement).

The court also found that a number of factors suggestive of undue influence were present. Such factors include: (1) discussion of the transaction at an unusual or inappropriate time; (2) consummation of the transaction in an unusual place; (3) insistent demand that the business be finished at once; (4) extreme emphasis on untoward consequences of delay; (5) the use of multiple persuaders by the dominant side against a single servient party; (6) absence of third-party advisers to the servient party; or (7) statements that there is no time to consult financial advisers or attorneys. Here, the plaintiff was presented with the arbitration agreement during a new-hire orientation in a hotel parking lot, at the end of the workday, where he was given no place to sit. Further, evidence was presented that the defendants made insistent demands that the signing of the contracts be completed rapidly, without time to review them, and repeatedly emphasized the negative consequences of failing to comply with the rules. Accordingly, the arbitration agreement was found to be invalid and unenforceable, and the defendants’ motion to compel arbitration was denied.

Martinez-Gonzalez v. Elkhorn Packing Co., No. 3:18-cv-05226 (N.D. Cal. Oct. 29, 2019).

Source: California Court Finds Arbitration Agreement Invalid and Unenforceable as a Result of Economic Duress and Undue Influence | Carlton Fields – JDSupra

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