On January 20, 2015, in Cruise v. Kroger Co., a California appeals court held that an arbitration clause in an employment application constituted a valid agreement to arbitrate employment-related disputes. The plaintiff had signed the employment application and separately initialed a clause with a heading in all caps, “Mandatory Final and Binding Arbitration.” Separately, the court found that the defendant failed to establish the contents of the arbitration policy it claimed was attached to the employment application and incorporated by reference. As a result, the court held that the procedures of the California Arbitration Act (CAA) would govern the parties' arbitration. (No. B248430, (Cal. Ct. App. Jan. 20, 2015).)

Plaintiff Stephanie Cruise was hired as an Assistant Human Resource Manager for the defendant in 2007. Prior to being hired, she filled out and signed an employment application that included a mandatory arbitration clause. The plaintiff separately initialed the mandatory arbitration clause with the all-caps heading, “Mandatory Final and Binding Arbitration.” The clause incorporated by reference a “Mediation and Binding Arbitration Policy.” According to the application’s arbitration clause, the policy required that any employment-related disputes be submitted to binding arbitration. The clause also referenced a waiver of the right to a judge or jury trial.

Cruise's employment was terminated in April 2012. Following her termination, Cruise filed an administrative action with the California Department of Fair Employment & Housing and obtained a right to sue letter. She then filed a lawsuit in Superior Court alleging discrimination, sexual harassment, retaliation and several other claims under the California Fair Employment and Housing Act. Cruise’s amended complaint requested a jury trial.

The defendant promptly filed a motion to compel arbitration and stay judicial proceedings. Kroger argued that a valid arbitration agreement existed and Cruise was bound by the arbitration clause in the signed employment application and by Kroger’s arbitration policy. Cruise argued she had not agreed to arbitration and the clause in the employment application was unenforceable. She denied that she was provided a copy of the arbitration policy at the time she signed the employment application.

Following a hearing, the Superior Court denied Kroger’s motion to compel arbitration. The court held that Kroger had failed to prove the existence of a written agreement to arbitrate, and that Kroger’s written arbitration policy was both procedurally and substantively unconscionable. Kroger appealed the Superior Court’s decision.

The Court of Appeal of the State of California, Second Appellate Division, Division Three (Court of Appeal) reversed the Superior Court decision and granted Kroger’s motion to compel arbitration. The court concluded that:

The court clarified that it was not enabling an employer to enforce a missing arbitration agreement and that it was not rewriting the arbitration agreement or severing Kroger’s arbitration policy to salvage the arbitration agreement. According to the court, the agreement to arbitrate was made by the signed employment application’s arbitration clause. Because Kroger’s actual arbitration policy was unenforceable, the alternative procedures provided for in the CAA would determine how the arbitration proceeding would be conducted.

Cruise expands a California employer’s ability to bind employees to mandatory arbitration by means of an employment application’s arbitration clause (and potentially other signed pre-hire documents), but also highlights the need for employers to maintain clear records establishing that all documents are received and accepted by the employee. However, employers must be mindful that incorporating an arbitration policy into an employment application by reference alone may not be sufficient to adopt any specific procedures contained in the arbitration policy. If employers want to determine the procedures to be used in an arbitration proceeding, they should make sure those procedures are outlined in a document that is received and signed by the employee.