This month, the Ninth Circuit Court of Appeals reversed course and held that the arbitration agreement signed by a H-2A temporary farm worker was valid and enforceable. This decision is instructive for California employers on how to roll out (and defend) a valid arbitration agreement.
Martinez-Gonzalez worked as a farm laborer harvesting lettuce under the H-2A guest worker program for Elkhorn Packing Company and D’Arrigo Brothers (collectively, “Elkhorn”). After quitting his job, Martinez-Gonzalez sued Elkhorn, alleging violations of federal and state labor and wage laws. Elkhorn moved to compel arbitration under an agreement signed by Martinez-Gonzalez during the orientation for incoming H-2A workers. The lower court held the arbitration agreement was invalid and unenforceable because Martinez-Gonzalez signed the agreement under economic duress and undue influence.
Arbitration Agreement at Issue
Critical to this case were the circumstances in which Martinez-Gonzalez signed the arbitration agreement. Elkhorn held group orientations for incoming H-2A workers at the beginning of the harvesting season. For Martinez-Gonzalez, the orientation did not occur until a few days after he began harvesting lettuce in the fields. The orientation took place at the end of the workday, at around 4 p.m., in a hotel parking lot. At the orientation, some 150 workers were asked to sign employment paperwork. To facilitate the signing of the paperwork, Elkhorn representatives directed employees to form lines, where they stood—in at least one case for 40 minutes—and waited to sign the paperwork. Once at the front of the line, an Elkhorn representative told each employee where to sign while flipping through the pages. Representatives urged employees to hurry so that others could have a chance to sign. The employment paperwork included an arbitration agreement. Elkhorn representatives didn’t explain the contents of the arbitration agreement to Martinez-Gonzalez, didn’t give him a copy of the agreement, and didn’t tell him he could consult an attorney before signing it.
Instructive for California employers, the Ninth Circuit decision focused on 3 issues: economic duress, reasonable alternatives, and undue influence.
Previously, the lower court ruled that Martinez-Gonzalez suffered economic duress by Elkhorn’s wrongful acts. Specifically, the lower court concluded Elkhorn committed a wrongful act by asking Martinez-Gonzalez to sign the arbitration agreement after he made the journey from Mexico to California, where he was dependent on Elkhorn housing and already started harvesting lettuce for Elkhorn. While the Ninth Circuit acknowledged Martinez-Gonzalez’s socioeconomic conditions and reliance on his U.S. employer, the Ninth Circuit concluded that Elkhorn did not engage in any “wrongful act” such as making a false claim, bad-faith threat, refusal to pay or decrease wages.
Setting aside economic duress, California law will consider whether the individual had a reasonable alternative to avoid a coerced agreement. Simply put, a person cannot establish economic duress when reasonable alternatives are available because alternatives remove the inappropriate pressure. The lower court found that Martinez-Gonzalez lacked reasonable alternatives to signing the arbitration agreements because his challenging financial situation required him to keep his job with Elkhorn. The lower court felt that Martinez-Gonzalez’s options were limited because he (mistakenly) believed his work visa only allowed him to work for Elkhorn and he was dependent on Elkhorn for housing and transportation back to Mexico.
Conversely, the Ninth Circuit held that Martinez-Gonzalez could have simply asked whether signing the arbitration agreements was necessary for him to keep his job. Further, no one at Elkhorn told Martinez-Gonzalez that refusing to sign the agreement was a cause for termination. The agreements themselves did not say that they were mandatory. Finally, the arbitration agreement expressly allowed Martinez-Gonzalez to revoke the agreement within ten days and he failed to do so.
Under California law, undue influence consists of two elements: (1) undue susceptibility in the servient person, and (2) excessive pressure by the dominating person. As to the first element, Martinez-Gonzalez had a secondary-school education and could read and write in Spanish. Martinez-Gonzalez was the bread winner for his family providing housing and medical care for them in Mexico through his work at Elkhorn. That Martinez-Gonzalez quit his job with Elkhorn before the end of the H-2A contract confirmed for the Ninth Circuit that he had no undue susceptibility. As to the second element, the Ninth Circuit acknowledged that the circumstances in which Martinez-Gonzalez signed the agreement were “not ideal” but did not reflect oppressive pressure.
While being a hard-fought victory for Elkhorn, this decision also provides California employers a good roadmap on how to roll out a valid arbitration agreement. California employers are reminded that how arbitration agreements are executed may make the difference in defending your business years later. The Elkhorn decision can be found here.