In Velarde v. Monroe Operations, LLC, et al., a California Court of Appeal clarified that employer arbitration agreements may be unenforceable if signed under coercive circumstances and in reliance on misleading statements regarding its terms.
Monroe Operations, LLC, doing business as Newport Healthcare (Newport), a national behavioral health company, hired Karla Velarde in 2020. On her first day, Newport provided Ms. Velarde a stack of 31 onboarding documents, including a five-page arbitration agreement. The HR manager told Ms. Velarde to sign the documents “as fast as possible,” and completion was required for her to start work. Ms. Velarde expressed that she did not understand the agreement and was hesitant to sign it. The HR manager told her it was required to start work and would allow the company to resolve issues “without having to pay lawyers.” Relying on those statements, Ms. Velarde signed. Newport later terminated Ms. Velarde.
After Ms. Velarde was terminated, she sued Newport, alleging discrimination, retaliation, and whistleblower violations. Newport moved to compel arbitration. The trial court denied the motion on the grounds of unconscionability. Newport appealed, and the court of appeal affirmed, finding both the execution and substance of the agreement unenforceable under the circumstances.
The court of appeal found Ms. Velarde had no meaningful opportunity to understand the agreement. She was rushed, given no time to consult counsel, and misinformed about the agreement’s effect. Ms. Velarde’s signature was not the result of a voluntary or informed agreement.
The court of appeal highlighted the fact that the agreement terms did not match what was represented by the HR manager. Ms. Velarde was told that dispute resolution would be informal and inexpensive, when in reality, the agreement provided a process that mirrored formal litigation. The court of appeal emphasized that the complex legal terms, procedural rules, and fee arrangement made the agreement “so one-sided” as to only benefit Newport.
The court of appeal emphasized that whether Newport meant to mislead Ms. Velarde was not the issue. What mattered was the effect of the misrepresentation.
The Velarde decision serves as a critical reminder to employers that arbitration agreements, even if legal in form, may be deemed unenforceable when presented in a coercive or misleading manner. Courts will closely examine both the content of the agreement and the circumstances under which it is signed, particularly when employees are required to sign as a condition of starting work.
To mitigate risk, employers should implement clear and consistent onboarding procedures that promote transparency. Employers should provide new hires with reasonable time to review onboarding documents and ensure that any representations made by HR accurately reflect the terms of the agreement. Most importantly, employers must take steps to confirm that employees are entering into arbitration agreements knowingly, voluntarily, and free of undue pressure.
Velarde v. Monroe Operations, LLC, et al. (Case No. G063626).