Jensen v. U-Haul, DCA4/2 , 12/11/17
This case deals with the enforceability of an arbitration agreement against an employee, but not in the usual case where employer seeks to compel its employee to arbitrate wrongful termination claims.
Here, the employer rented a U-Haul. In its contract with U-Haul, the employer agreed to a broad arbitration clause that included claims brought by the employer’s employees. You know the rest: The employee, Jensen, drove the U-Haul in the course of his work duties for the employer; he had an accident and was injured; when he sued U-Haul, U-Haul moved to compel arbitration.
The trial court denied U-Haul’s motion.
Held: Affirmed.
There are two general rules that drive this result: First, a company’s contracts with third parties don’t normally bind an employee. Second, people generally can’t be compelled to arbitrate if they haven’t agreed to.
The various exceptions to the second rule—where a non-party to the agreement can be bound without signing the agreement—arise from things like principles of agency and third party-beneficiary law.
A third party beneficiary is someone who may enforce a contract because it was made expressly for his benefit. Here, the U-Haul was not rented for the employee’s benefit.
On the question of agency, the court noted that at least one case has broadly stated that an employee is in fact bound by the employer’s arbitration agreement with a third party. RN Solution v. Catholic Healthcare West (2008). The Uh-Haul court wasn’t persuaded, noting that the court in RN Solution had enforced the arbitration agreement on facts that were more narrow than the court’s language suggested.
In keeping with principles of agency, the court instead held that whether employer can bind the employee under agency principles should turn on principles of agency—that is, whether the party signing the agreement had implied authority to bind the non-signatory. The court found no evidence in the record suggesting that the employer had the implied authority to bind Jensen to arbitrate Jensen’s claims with U-Haul.
Counsel for U-Haul brought up an interesting point by analogy: In the insurance context, the employer/insured buys insurance for claims against its employees and agents. When disagreements arise between an employee and the employer’s insurer about whether a claim against the employee is covered by the policy, the employee may be bound by the arbitration agreement contained in the insurance contract. I am not sure that helps U-Haul–Unlike employee Jensen in this case, the hypothetical employee in the insurance case would be a third party beneficiary of the contract, and therefore bound under one the recognized exceptions cited above. Another thing that comes to mind is one of California’s legal maxims, found in Civil Code section 3521: “He who takes the benefit must bear the burden.” If the employee’s action against U-Haul is completely independent of the contract, then perhaps he shouldn’t be bound by the arbitration agreement. But if the success of Jensen’s action against U-Haul depends in some material way on the existence of the contract or rights granted by it, could that lead to a different result?