California Court Allows Employee to Disaffirm Arbitration Agreement due to Age

We thought we'd heard everything! This is a new one, that's for sure. It's no secret that employees try to wiggle out of arbitration agreements all of the time. There are the usual digs: the agreement was buried in the middle of the documents, the font was too small, it didn't have the magic words, it requires the splitting of fees, etc. This case presents an entirely different type of argument, however. As demonstrated more fully below, in this case, the federal district court in California agreed with an employee that he was not bound by the arbitration agreement that he previously executed when he was a minor.

In Lopez v. Kmart, the employer distributed its employment policies and conducted onboard training via an online training system. Employees were required to log in using a unique identification name and password, and were are able to view and print company employment policies and training. Employees were required to acknowledge receipt of certain policies on the online system, including an arbitration agreement. After reviewing the arbitration agreement, employees are asked to acknowledge their receipt by clicking an "Acknowledge receipt" link, followed by a clicking a "Yes" button then "Submit."

Lopez was hired as a cashier in April 2013, when he was 16 years old. He acknowledged receipt of the arbitration agreement through the Kmart online system on May 20, 2013. Almost two years later, on January 20, 2015, one month after his eighteenth birthday, he filed a class action complaint against Kmart in Contra Costa County Superior Court alleging California wage and hour violations. Kmart timely removed the action to federal court and filed a motion to compel arbitration.

The U.S. District Court for the Northern District of California held the arbitration agreement was valid, but that Lopez exercised his statutory right of disaffirmance under California Family Code Section 6710, and thereby rescinded the contact. California Family Code Section 6710 states "a contract of a minor may be disaffirmed by the minor before majority or within a reasonable time afterwards ." The court held that filing the instant action within a month of maturity was sufficient to disaffirm the contract within a reasonable time.

Obviously, this case presents a very unique situation and is yet another obstacle in the path to employers trying to pursue arbitration. This ruling is significant because it could also apply to disputes involving confidentiality agreements, non-compete agreements, and even severance/separation agreements. How can employers protect themselves? Well, for one - consult with legal counsel! Depending upon your organization's operations and structure, it may be worth it to consider having minor employees sign a second set of employment paperwork upon reaching maturity (or within some period of time reasonably thereafter). While this may be a logistical and administrative nightmare, it may be the best way to protect the employer from a future disaffirmance.  

With questions, contact Hinshaw's Los Angeles office.