Following conventional wisdom, many California employers have adopted the practice of requiring their employees to sign mandatory arbitration agreements. For such employers, the advantages of arbitration include (1) reduced publicity because arbitration is closed to the public and the press; (2) less exposure to punitive damages or runaway verdicts (juries tend to be more emotional and oftentimes award larger, punitive verdicts than do arbitrators); (3) more expeditious and streamlined discovery; (4) speedier resolution of the litigation as compared with the economically-challenged and overburdened court system; (5) ability to select an arbitrator with employment expertise; and (6) protection from potential class actions.
To benefit from such advantages, however, employers must diligently review their arbitration agreements with competent employment counsel to ensure that such agreements remain enforceable in light of the rapidly evolving body of law pertaining to arbitration agreements.
As recently as June 4, 2013, a California appellate court reviewed an employment arbitration agreement to determine its enforceability. Brown v. Superior Court (Morgan Tire & Auto, LLC), __ Cal. App. 4th __, 2013 WL 2449501. While the Brown case dealt with the narrow issue of whether representative claims under the California Private Attorneys General Act (“PAGA”) can be compelled to arbitration (apparently not), the key California Supreme Court case regarding enforceability of employment arbitration agreements is Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000).
In Armendariz, the Court held that employers can require employees to sign mandatory, pre-dispute arbitration agreements as a condition of employment so long as they are not unconscionable. To be conscionable, the agreement must be bilateral (meaning that it benefits and constrains both the employer and employee equally), fair, and employers must pay those costs unique to arbitration. If conscionable, an arbitration agreement can even contain a class action waiver.
In AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the United States Supreme Court held that arbitration agreements containing class action waivers are enforceable. However, since Concepcion was decided, California courts have grappled with the question of whether an employer may require employees to waive the right to file or participate in a class action. Significantly, California courts have attempted to circumvent Concepcion’s holding by concluding that various employment arbitration agreements were unconscionable for a myriad of reasons.
Recommendations for Employers
Given the ever-evolving case law and judicial resistance (in California state courts) to arbitration agreements that contain class action or representative action waivers, employers should be proactive in reviewing and revising their arbitration agreements to withstand judicial scrutiny. While employers can hope that a court will sever an unconscionable provision from an arbitration agreement, even one unconscionable provision could render the entire agreement invalid if the agreement is found to be permeated with unconscionability. Accordingly, it is strongly recommended that employers work with employment counsel to carefully review arbitration agreements to ensure they are conscionable and enforceable. Here are some “do’s” and “don’ts” to keep in mind when reviewing such agreements:
| DO | DON’T |
| Do ensure that provisions of the arbitration agreement are bilateral. In other words, the agreement should impose the same constraints and bestow the same benefits to both the employer and employee.
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Don’t require the employee to arbitrate certain claims while allowing the employer to go to court on certain claims (e.g., injunctive relief).
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| Draft the agreement in clear and unambiguous language, and put the jury and class action waiver provisions in bold and conspicuous font.
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Don’t forget to identify or attach the rules that apply to arbitration. At a minimum, provide a web link where employees can access the rules.
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| Provide an opportunity for employees to ask questions about the terms of the arbitration agreement. (E.g., include a sentence that says “If I have any questions about this document, I understand that I can contact the Human Resources department.”)
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Don’t shorten the statute of limitations for the employee to file a claim. For example, requiring an employee to file a wrongful termination claim within three months of termination instead of the two years provided by statute would be unconscionable.
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| Consider including a clear and conspicuous “opt-out” provision allowing the employee to change his or her mind within 30 days of signing the arbitration agreement. (Judges love this provision and employees rarely change their mind).
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Don’t limit discovery. Employees should be able to conduct reasonable discovery such as taking depositions and serving written discovery requests.
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| Employers should pay costs unique to arbitration (i.e., the employee should not be required to pay more than what he or she would incur for commencing a civil action in court).
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Don’t designate an inconvenient forum. For example, if the employee works in Los Angeles, the employee should not be expected to arbitrate a claim in Kansas.
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| Ensure that the arbitration agreement permits both parties to conduct discovery and file dispositive motions.
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Don’t use an unfair arbitrator selection process. The panel of arbitrators should be neutral and sufficiently populated to allow the employer and employee to select from a variety of arbitrators
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Marie represents employers in wage and hour class and representative actions. She also defends employers against wrongful termination, discrimination, harassment, retaliation and unfair competition claims in court, arbitration and administrative proceedings. Marie has extensive experience counseling employers regarding all aspects of the employment relationship and works with employers to develop strategies to prevent employment claims and create effective defenses to litigation. Marie counsels employers regarding performance management, termination, contracts, workplace investigations, medical issues, leaves of absence and employment policies and practices.
Jaclyn focuses her practice on representing employers in federal and state court litigation involving discrimination, harassment, retaliation, wrongful termination, unfair competition and wage and hour claims. She also counsels employers on a broad spectrum of day-to-day employment matters, including employee discipline, terminations, leaves of absence and wage and hour issues. In addition, she assists employers in drafting policies, employee handbooks and employment-related agreements to ensure compliance with California and federal laws while also serving the employer’s individual business needs. Jaclyn has experience drafting international employment agreements, equity compensation plans, student/staff interaction polices and has created employer training materials.