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San Diego Business Contracts: Arbitration Agreement Held to Have Retroactive Effect

If a business contract is written correctly and broadly enough, then the contract can have a retroactive effect. This is the holding of a recent California Court of Appeals case with respect to an arbitration agreement. See Salgado v. Carrows Restaurants, Inc., Case No. 2d Civil No. B285756 (Cal. App. 2nd Dist. February 26, 2019). This is among the many reasons that it is essential to retain an experienced San Diego corporate attorney to draft and review your business contracts.

In Salgado, the plaintiff worked for Carrows Restaurant for 28 years. In 2016, she filed a lawsuit alleging employment discrimination and violation of her civil rights for various actions that she claimed were taken by the restaurant against her. In her original lawsuit, she sued the wrong corporate entity, which sometimes happens. As allowed under the rules of procedure, she subsequently amended her complaint to add the correct and true corporate defendants.

Between the initial filing of her lawsuit and the filing of the amended lawsuit, Carrows had its employees, including Salgado, sign an arbitration agreement related to all claims arising out of their employment. Thereafter, in response to the amended lawsuit, Carrows asked the trial court to compel arbitration. Salgado objected, claiming that the arbitration agreement was not retroactive in her case. That is, because she had a lawsuit on file at the time she signed the arbitration agreement, she should not be compelled to arbitrate her claims that were pending at the time. The trial court agreed and refused to compel arbitration.

On appeal, the Court of Appeals reversed. The court held that, in general, if a contract is written broadly enough and if the intent is clear, contracts will be deemed to have retroactive effect. The arbitration provision at issue was this:

“The Company [Carrows] and I agree and acknowledge that we will utilize binding arbitration as the sole and exclusive means to resolve all disputes which [1] may arise out of or [2] be related in any way to my application for employment and/or employment … Both the Company and I agree that any claim, dispute, and/or controversy that I may have against the Company … or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration.” (Italics and brackets added)

The Court of Appeals held that this provision was intended to be broad and was intended to cover past, present, and future employment-related disputes. The court held that the use of the words “may arise” and “any claim” show the intent to make the agreement to arbitration retroactive. As such, the court held that the arbitration agreement applied to Salgado even though she had already filed her lawsuit.

There was, however, one potential problem for Carrows: At the time that Salgado signed her agreement to arbitration, she was represented by an attorney. A factual question was raised whether Carrows made Salgado’s attorney aware of the request that she sign the agreement. If a party is represented by an attorney, certain formalities must be undertaken when presenting a contract for signature; otherwise, any agreement signed could be challenged. The case was returned to the trial court for a determination of those issues.

California Business Contracts: Contact San Diego Corporate Law Today

If you would like more information about business contracts, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters. Mr. Leonard has, for the fourth year, been honored as “Best of the Bar” by the San Diego Business Journal for 2018. Like us on Facebook.

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