With Arbitration Agreements, Less is More

Many employers try to limit their exposure to employee lawsuits by requiring employees to sign arbitration agreements.  Such agreements can force an employee to submit any claims against the employer to binding arbitration.  This results in a person (usually a practicing attorney or retired judge) making a decision on the merits which cannot be appealed.  The advantages for the employer are that it is generally less expensive, eliminates the need to go to court, and keeps the dispute out of the public eye.  In addition, an arbitrator may be less likely to punish an employer than a jury.

Arbitration can also be advantageous for employees because it enables claims to be resolved faster and with less expense.  For reasons not pertinent to this post, attorneys representing employees generally oppose arbitration.  Because of this, there are many appellate court decisions over the past 15 years  generally favoring arbitration agreements which also spell out procedures to ensure a fair process for employees.

Arbitration agreements for employment disputes are generally enforceable if they meet five conditions that were articulated in 2000 by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc.: These are:  (1) a neutral arbitrator;  (2) more than minimum discovery; (3) a written award; (4) the right to claim all types of relief that would be available in court; and (5) payment of the arbitrator’s fees by the employer.  Many of the challenges to enforced arbitration over the years focused on the failure of the arbitration agreement to provide each of these conditions.  The appellate courts have consistently held that as long as an arbitration agreement does not preclude the right to the above five conditions, those conditions are implied and the agreement is enforceable.  Therefore, an agreement that simply states something to the effect that “the employer and employee agree to submit all disputes arising from their employment relationship to binding arbitration” is sufficient.  In this case, “less” IS “more.”

Unfortunately, most lawyers who draft employee arbitration agreements cannot resist the temptation to “lawyer up” and insert lots of  waivers, provisos, contingencies, and caveats to the agreement, perhaps (regrettably) based on a philosophy of “more is more.”   While most of the recent decisions focus on whether such agreements can also be used to bar class actions and representative actions under the Public Attorney General Act (“PAGA”), some employers still persist in trying to impose arbitration rules which make it more difficult to arbitrate a claim.  In Roman v. Superior Court, decided in 2009, the arbitration rules that were incorporated into the agreement required that employees pay half of all arbitration fees,  contrary to Armendariz.  The Court of Appeal held that this provision was “unconscionable,” but that it could be severed from the agreement.  This thwarted the employer’s ill-conceived attempt to deter the employee from making the claim but in the process, a lot of time and money was wasted litigating an issue that had nothing to do with the merits.

The lesson for employers is to keep arbitration agreements as simple as possible.  The lesson for employees is to not waste time and money challenging an arbitration agreement if the employer will agree on a fair process consistent with the conditions set forth in Armendariz.