Challenging Electronic Signatures in Arbitration Agreements

Many companies now require employees to agree to arbitration of any claims that the employee may have against the employer. They do so for several reasons: (1) Employers want to prevent their employees from bringing class actions; (2) Employers think they are more likely to win in arbitration than before a jury and that if they lose the verdict will be lower; (3) Arbitration is a great way for employers to drag out the process; and (4) Appeals from arbitration decisions are normally limited in scope.

Many such companies now use some kind of electronic on-boarding process. These processes often include an agreement to arbitrate that is so buried in other documents  that the employee does not notice it. But some employees are brave enough not to sign the arbitration agreement. Accordingly, it is important to figure out at the outset of a case whether the employee actually signed an arbitration agreement.

An excellent 2024 case out of California’s First District Court of Appeal addresses a number of issues that arise when plaintiffs are challenging the existence of an arbitration agreement. In Garcia v. Stoneledge Furniture, LLC (2024) 102 Cal.App.5th 41, the plaintiff flatly denied signing an arbitration agreement. Nevertheless, the defendant claimed that she had done so. The trial court found in the plaintiff’s favor on this issue and the defendant then appealed.

The Court of Appeal clarified first that when there is a challenge to the formation of an arbitration agreement, this issue must be decided by the court and not by an arbitrator. This is true even when there is a delegation clause that appears to delegate the issue to an arbitrator. This is critical because arbitrators are paid significant amounts of money by defendants to decide case. They therefore have a vested interest in finding that an arbitration agreement was signed, unlike trial court judges who are neutral on the matter. Further, as the Court of Appeal noted,

To conclude otherwise would mean that a party need only fabricate a signature on an alleged arbitration agreement to bypass the courts and send a dispute to arbitration. We do not suggest this occurred here, but we decline to embrace an interpretation of the law that could lead to such results.

The Court of Appeal then set forth the test that applies when a plaintiff argues that there was no agreement to arbitrate:

First, the party seeking to compel arbitration bears an initial burden to show an agreement to arbitrate; that burden can be met by providing a copy of the alleged agreement.

Next, if that initial burden is met, the burden shifts to the party opposing arbitration to identify a factual dispute as to the agreement’s existence, thereby shifting the burden back to the arbitration proponent.

Finally, and “[b]ecause the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance
of the evidence.”

Critically, this framework applies even if the arbitration agreement states that it is governed by the Federal Arbitration Act (FAA). Id. at 51.

Applying this test, the Garcia court found that the plaintiff had met her initial burden by denying that she had signed the arbitration agreement. She also compared the agreement to other documents signed on the same day and shoed that those documents bore indicia of reliability not shown by the arbitration agreement.

The burden then shifted to the employer to prove the authenticity of the signature on the arbitration agreement. An employer may do so in several ways:

For example, a party may present evidence that the signatory was required to use a unique, private login and password to affix the electronic signature, along with evidence detailing the procedures the person had to follow to electronically sign the document and the accompanying security precautions.

In Garcia, both the trial court and the Court of Appeal found that the defendant had not shown that only the plaintiff could have placed the electronic signature on the arbitration agreement. This was true even though the plaintiff had created a unique user ID and confidential password because there was no evidence that only the plaintiff could have inserted this information into the agreement:

Dale’s declaration did not detail the security precautions regarding the use of the Taleo username and password; the arbitration agreement lacked a date, time, or IP address; and the agreement contained no indication it was created within the Taleo system. The court also took into consideration and credited Garcia’s statements disputing the reliability of the evidence given the differences between the arbitration agreement and other documents she signed the same day and in the same manner.

Under these circumstances, the trial court concluded that the Court of Appeal had not erred in finding that the defendant had failed to establish the authenticity of the signature on the arbitration agreement. Therefore, the agreement was not enforceable.

If you have questions about arbitration in the workplace, please feel free to contact the employment lawyers at Hunter Pyle Law PC. We can be reached at (510) 444-4400 or at hunterpylelaw.com.