Arbitrating a dispute can be a quicker, less costly and more private alternative to courtroom litigation. But it’s also subject to the schoolyard rule of “use it or lose it.”

That’s the lesson of a recent decision by the California Court of Appeal (Fleming Distribution v. Younan.)

Alfonus Younan worked as a sales representative for Fleming Distribution Company from 2009 to 2016. A year after he left, Younan filed a complaint against the Northern California company with the state Labor Commissioner, claiming Fleming owed him $22,000 in commissions, plus penalties and interest.

Fleming asked the Commissioner to dismiss the complaint because Younan had signed an arbitration agreement.

“To resolve disputes in an efficient and cost-effective manner,” the agreement said, “Employee and Employer agree that any and all claims arising out of or related to the employment relationship that could be filed in a court of law…shall be submitted to final and binding arbitration, and not to any other forum.”

Despite Fleming’s, request, the Labor Commissioner set a hearing for August of 2018. Fleming asked the Commissioner to deny Younan’s claims, arguing that the matter should be handled through arbitration and asking the agency to dismiss the complaint.

If the Labor Commissioner didn’t dismiss the complaint, Fleming said, the company was “prepared to file a motion with the Superior Court seeking to compel arbitration.”

The Commissioner did not dismiss the complaint, yet Fleming did not petition the Superior Court to compel arbitration.

Younan and Fleming participated in the Commission hearing, with both sides presenting testimony, submitting documents and marking their arguments.

In December of 2018 the Commissioner awarded Younan $27,412.60, including the $22,000 in commissions and the remainder in interest and damages.

Fleming then filed a petition with the Sonoma County Superior Court, asking it to set aside the Commissioner’s order, compel arbitration and “dismiss this matter in its entirety.”

In his response, Younan argued that his employer had waived its right to arbitrate the dispute “by taking actions inconsistent with an intent to arbitrate and unreasonably delaying its petition.”

This behavior, he said, was “contrary to the purposes of arbitration – expeditious resolution of disputes in a cost-effective manner.” 

The company said that it had not waived its right to arbitration, because it “rather consistently requested that this matter be dismissed and brought through…arbitration.”

The trial court denied Fleming’s petition. It said the company had waived its right to arbitrate the dispute by “taking steps inconsistent with an intent to invoke arbitration.” These included delaying its request for arbitration until after the Labor Commission held the hearing and issued its ruling.

Fleming appealed, arguing to the Court of Appeal that it had not waived its right to arbitration.

The appellate court noted that, because the law favors arbitration, a party asserting waiver “bears a heavy burden of proof,” and any doubts about waiver should be resolved in favor of arbitration.

To determine whether a party has waived its right to arbitrate, the appellate justices said, a court must look at whether the party took actions “inconsistent with the right to arbitrate.”

These include waiting until litigation is well underway before invoking the right to arbitrate, and “whether the delay affected, misled, or prejudiced the opposing party.”

Merely stating that one has the right to compel arbitration is not enough to secure that right, the justices said. The party must also “take affirmative steps to implement” the arbitration process.

Fleming knew it had the option to ask the superior court to compel arbitration. Yet even after the Labor Commissioner declined to dismiss Younan’s complaint, the company did not ask the trial court to halt the Commissioner’s proceedings and compel arbitration.

The company waited 20 months after Younan filed his complaint that Fleming to ask the superior court to compel arbitration. The trial court found this delay was unreasonable, and the higher court agreed.

The appellate justices noted that “the benefit of arbitration is that it is a relatively efficient and cost-effective way of resolving disputes.” Because of Fleming’s actions, it noted, Younan had to wait “several years to collect wages” the Commissioner said he was owed. As a result, “all benefits of a speedy resolution Younan could have obtained through arbitration have been lost.”

The justices upheld the trial court’s ruling against the company, and awarded Younan his costs on appeal.

By Joseph S. Fischbach