It is common practice throughout California to have an employee sign an arbitration agreement at the time she is hired. These agreements are generally non-negotiable, buried in a pile of new hire paperwork, and require the employee to arbitrate any claims arising out of employment. While valid arbitration agreements provide some of the safeguards that are afforded to litigants in court, it often takes away basic protections and rights including a trial by jury, and class or collective action. Arbitration is also a private process so it allows an employer to keep their wrongdoing under wraps.

The United States Supreme Court has said, repeatedly, that arbitration agreements are valid in the employment context. Recognizing the inherent imbalance in power between employers and employees, several states have tried to stop employers from forcing employees into arbitration. However, given the Supreme Court’s rulings, it is impossible to ban arbitration in employment altogether. The hope is that in California, AB 51 will even the playing field before an employee signs an arbitration agreement; requiring that an employee can only enter such an agreement voluntarily. The law also prohibits an employer from retaliating against an employee who declines to enter into an arbitration agreement, which provides additional protection.

Another significant benefit of the law is that attorneys’ fees are available to prevailing plaintiffs for violations of the law. This is an important piece of the legislation as the availability of attorneys’ fees greatly impacts the ability of plaintiffs’ firms to actually take and litigate these claims. It also provides a valuable bargaining chip in settlement negotiations.

While we expect that there will be legal challenges to AB 51, come January 1, 2020, employees have expanded and important rights with respect to whether they agree to enter into an arbitration agreement. While worker protections at the federal level are being chipped away, in California AB 51 is a significant step in the right direction to preserving employee rights in the workplace.

Jean Krasilnikoff

In Epic Systems Corp. v. Lewis, the Supreme Court decided that the NLRA does not protect the right of workers to engage in collective action through class-wide arbitrations, and instead, employers can compel employees to one-on-one arbitration for any workplace disputes or claims. In doing so, the Court ignored the realities of employment arbitration agreements and shifted the power squarely to employers.

Employees rarely “agree” to arbitration. Employees are often confronted with take-it-or-leave-it arbitration agreements – if the employee doesn’t sign, she doesn’t get the job. In the past, many arbitration agreements would require employees who sign the arbitration agreement to waive their right to go to court, and instead forces the employee into closed-door arbitrations. Usually the agreements include any claims – including discrimination and wage and hour claims.

As if this is not bad enough, employers have started including sections in arbitration agreements prohibiting employees from filing claims together as a class. For years, class-wide arbitrations have been an effective tool for workplace disputes – especially wage and hour claims for low-wage workers. For example, if a group of employees believes they have been misclassified or haven’t received meal and rest breaks, they have been able to band together to file a single class-wide arbitration against their employer. There is power in numbers. Where an individual employee may not have the means to hire an attorney, especially where the damages are low, a class-wide arbitration has the potential for substantial recovery and is often an attractive prospect for attorneys. In her dissent, Justice Ginsberg noted: “By joining hands in litigation, workers can spread the costs of litigation and reduce the risk of employer retaliation.” The cases before the Supreme Court challenged this practice – arguing that allowing employers to force employees into one-one-one arbitration is a violation of the right of employees to band together under the NLRA. Unfortunately, the Supreme Court disagreed and employers now have the green-light to force employees into arbitration agreements that waive class claims.

We agree with Justice Ginsberg that the Court’s decision is “egregiously wrong” and that this decision exacerbates the power imbalance between employers and employees that the NLRA was designed to correct. While this decision eviscerates an especially powerful tool for holding rogue employers accountable, our firm is committed to preserving employee rights both in court and arbitration. If you feel you have an employment claim, contact our offices today.

Jean Krasilnikoff

First, as to the bad news: Boxed in by the United States Supreme Court’s decisions on the enforceability of arbitration agreements, including in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2001), the California Supreme Court upheld the validity of class action waivers in employment arbitration agreements. The California Supreme Court overruled its previous decision in Gentry v. The Superior Court of Los Angeles, 42 Cal.4th 443 (2007) as preempted by the Federal Arbitration Act (“FAA”).

The California Supreme Court also addressed the recently developed and powerful argument that class action arbitration waivers are invalid under the National Labor Relations Act (“NLRA”), which provides workers with a right to collective organize and advocate for their rights as a group. That argument gained traction with the National Labor Relations Board (“NLRB”) in its recent decision in D.R. Horton. Inc., 357 NLRB No. 184 (2012), but unfortunately the California Supreme Court sided with the Fifth Circuit’s contrary opinion in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). The California Supreme Court held that the NLRA was no obstacle to the applicability of the FAA to support the enforcement of class action waivers in arbitration agreements.

There is a silver lining to every cloud, and the Court’s decision in Iskanian provided one. The Court held that an employer-employee arbitration agreement cannot provide for a waiver of employees’ rights to undertake a representative action under the California Private Attorneys General Act (“PAGA”), as that would violate public policy. The Court held that the FAA did not mandate a contrary result, while explaining that “a single-claimant arbitration under the PAGA for individual penalties will not result in the penalties contemplated under the PAGA to punish and deter employer practices that violate the rights of numerous employees under the Labor Code. That plaintiff and other employees might be able to bring individual claims for Labor Code violations in separate arbitrations does not serve the purpose of the PAGA, even if an individual claim has collateral estoppel effects.” In so holding, the Court also explained that PAGA does not violate the principle of separation of power under the California Constitution.

There are several interesting things to think about moving forward after this case. As an initial matter, it remains to be seen as to whether this will result in employers inserting more arbitration agreements in employment contracts and handbooks. The reason is that, although the United States and California Supreme Courts have made it easier for employers to do so, employers still need to be careful for what they wish for. Experience has demonstrated that arbitrations are costly for the employer, and they don’t always come out the way the employer expects it to. For example, our firm has had excellent outcomes in arbitrations, including seven figure awards and awards of punitive damages.

Moreover, while Iskanian gives employers a new stick to enforce certain arbitration agreements, employees and their advocates faced with an arbitration agreement should not give up and lose hope because (1) arbitration agreements are still subject to challenge on unconscionability grounds (Iskanian did not change that), (2) PAGA provides at least some stick to enable employees to enforce their rights in “representative” actions, and (3) there are positive sides to an arbitration agreement. There is a positive side to arbitration agreements for employees because the employer generally has to pay the arbitrator’s costs if the employee wins, there is no real appeal so the employer has to pay up quickly, and the arbitration can be quicker and less expensive for the employee.

We also all need to keep tabs on whether the U.S. Supreme Court decides to hear this case to address its holdings.

July 15, 2014 Benjamin Siegel

Mr. Wade brought a claim for wrongful termination in violation of public policy. His public policy claim was for race discrimination. Wade justified this outcome by noting the uniqueness of the Fair Employment and Housing Act’s statutory scheme. That part, I generally understand, even if I don’t agree with it However, the Court didn’t stop there. It came up with a hard-to-follow and not so well- reasoned argument that Mr. Wade’s public policy against race discrimination was violated was encompassed in his union arbitrations and therefore precluded by it. The fact that his union arbitration didn’t in any way address race discrimination, didn’t stop the Court from its labored and illogical analysis that it did. So, be very careful of your labor arbitration’s impact on any civil case you might bring!

Jody I. LeWitter December 17, 2013

Here the employer imposed an arbitration agreement upon Mr. Moreno. When Mr. Moreno filed a simple Labor Commission claim to collect his vacation pay, the employer refused to attend the Labor Commission (Berman) hearing, and instead moved to arbitrate the claim. I suspect the move was a ploy to make it so expensive and time consuming for poor Mr. Moreno to collect what wasn’t a large amount of money to begin with, that he’d just give up. Lucky for Mr. Moreno, the Labor Commissioner realized the negative implications for all employees just trying to get paid for the work they do, if they can’t go to the Labor Commission.

In 2011 the California Supreme Court held that Mr. Moreno was entitled to his Labor Commission hearing, and that if the employer was dissatisfied with the results of the Berman hearing, it could then move to arbitrate. This was a fairly benign and logical holding.

But I guess this wasn’t enough for the anti-employee U.S. Supreme Court. It vacated the California Supreme Court opinion, and sent the case back to the California courts for reconsideration. Sonic-Calabasas A, Inc. v. Moreno 132 S.Ct 496 (2011). (I blogged about this previously, see entry of November 20, 2011.)

So, now we are back in the California Supreme Court’s “court.” Given that the U.S. Supreme Court held that arbitrations are practically invincible, the California Supreme Court felt forced to recant its prior opinion. Thus, it held that a Labor Commission hearing on the way to an arbitration imposed significant delays and could not be tolerated under the U.S. Supreme Court’s holding on AT&T Mobility LLC v. Concepcion 131 S.Ct. 1740 (2011).

However, the California Supremes held out some hope. They held that the State of California still has the right to evaluate whether the arbitration agreement is unconscionable because it is, for example, unreasonably one-sided in favor the employer. Because the evidence related to that question had not been developed, the California Supremes sent the case back to the trial court to consider.

We can expect a hearing below looking at a variety of factors, including how unfair this is to Mr. Moreno. If Mr. Moreno has to go to arbitration, he’ll need to hire a lawyer to obtain his vacation pay. This is absurd. He’ll be paying more in attorney’s fees than he will receive in his vacation pay! Likewise, if he has to pay the arbitrator to obtain what would have otherwise been a free hearing before the Labor Commission, this will wipe out his vacation pay, and is unconscionable and unreasonable.

And speaking of speed and efficiency – the ostensible values of the U.S. Supreme Court in basically making arbitration practically invincible – how many court hearings and years must pass before Mr. Moreno simply gets a determination of whether he is owed his vacation pay?

Jody LeWitter 11/20/13

Take the recent case of Peng v. First Republic (2013) 219 Ca.4th 1462. The Court held that failure to attach the arbitration rules didn’t make the arbitration agreement procedurally unconscionable. On the other hand, if the arbitration rules had changed any important substantive rights, the agreement might have been procedurally unconscionable. So, we are left guessing whether in any other situation, an employer has to provide the arbitration rules to an employee or not.

Second, Peng held that the right of the employer to change the employment contract terms at any time, whereas the employee cannot, did not make this agreement substantively unconscionable. Why? Because the employer is supposed to act with “good faith . . . and fair dealing.” So, if the employer doesn’t act in good faith and fair dealing, well, then, is the agreement invalid? Again, slip and slide. We’re left guessing.

This case just demonstrates that interpreting whether or not arbitration agreements are valid prove what I’ve said one hundred times: There is no valid and coherent way to justify involuntary arbitration agreements.

Jody LeWitter November 13, 2013

When Toyota fired Mr. Richey, Mr. Richey evoked his rights under a mandatory arbitration agreement that Toyota required that he sign as a condition of his employment. After an 11 day hearing, the arbitrator ruled against Mr. Richey on his interference claim, i.e. his claim that Toyota interfered with or denied his right to family leave under the California Family Rights Act (CFRA) and the federal Family Medical Leave Act (FMLA). The arbitrator held that the employer was not liable because it terminated Mr. Richey’s employment because it honestly, but mistakenly, believed he misused his family leave.

Mr. Richey moved to vacate the arbitrator’s award, noting two things: (1) under both state and federal law, an honest mistake based on the employer’s state of mind is not a defense, and; (2) an arbitrator’s error of law that results in a denial of a party’s unwaivable statuatory right (in this instance his right to family leave) exceeds the arbitrator’s power and should be vacated.

The trial court ruled against Mr. Richey, but he didn’t give up, appealing to the California Court of Appeals, which agreed with Mr. Richey – explaining at length that an interference with family leave claim does not require that an employee prove that his or her supervisor had a discriminatory state of mind, like other discrimination claims. Indeed, interference claims are unique; if an employer wrongly denies family leave, it doesn’t matter if the employer was mistaken or honest or didn’t harbor a discriminatory motive. An employee is entitled to his or her family leave, and the employer must simply understand and follow the law. This is a very important point for all employees and the employer to understand.

The Court of Appeals also delved into the issue of when and whether to overturn an arbitrator’s award. While overturning this award, the Court was careful to note that not every arbitrator’s mistake of fact or law warrants the overturning of an arbitrator’s award. However, when the ruling results in the denial of an employee’s non-waivable statuatory rights created by FEHA, the arbitrator’s award exceeded the arbitrator’s power and should be vacated. This is an important door to keep open for employees. Although other cases have made this point before (see, for example, Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010)), it is important that the Courts reiterate this point so that employees – who may be compelled to arbitrate a claim under the Fair Employment and Housing Act or other civil rights statutes – understand that arbitration may not be their last stop on the road to seeking justice in the legal system.

Jody I. LeWitter April 2, 2013

In this case, the California Court of Appeals held that, as a procedural matter, a defendant waives its right to have an arbitrator determine the issue of arbitrability where the defendant acted in a manner inconsistent with the right to arbitrate and substantially invoked “the litigation machinery” per Saint Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 by addressing the employee’s claim on its merit, rather than by simply asking that the matter be sent to arbitration. This ruling makes sense – as the employer was asking the court to rule for two bites of the apple: let the court rule, and if it didn’t like the court’s opinion, then take it to an arbitrator.

Second, the Court of Appeals held that on the merits, an arbitration agreement is not invalidated by Labor Code §206.5‘s prohibition against requiring that an employee sign a release for the payment of wages without paying the wages in question. The Court noted that, as a matter of statuatory interpretation, the goal of Labor Code §206.5 is to prohibit the coercion of settlement of wage claims without the actual payment of the wages, but that Labor Code §206.5 did not bar an employer from requiring (or coercing, really!) the waiver of a jury trial.

Jody I. LeWitter August 16, 2012

Empire employs lots of carpet installers, and lots of them are not well educated (at least in terms of reading 11 pages of single-spaced legalese) and for many, the English in which their employment agreements are written is not their first language.

So you probably get the drift here. Empire tells its non-English speaking employees that they must sign an 11 page, single-spaced, complicated and obtuse legalese document, in order to get the job. And, they must sign pretty much all of their rights away, and it was made clear to them that there was no room for other options or changes to the contract. Oh – and this arbitration provision was buried in paragraph 36!

Mr. Samaniego signed. Later, when he determined he wasn’t being paid fairly, he sued on behalf of himself and others similarly situated (i.e. he filed a class action). Samaniego v. Empire Today LLC, ___Cal.App.4th____ (April 5, 2012).

Empire claimed Mr. Samaniego had agreed to arbitrate any claims he had against Empire. The Court of Appeals disagreed, and there is little wonder why. Empire’s agreement was a mastery of hide the ball:

1. The arbitration agreement was in the 36th paragraph;

2. The agreement to arbitrate didn’t say what the terms of the agreement were – just referred to the commercial rules of the American Arbitration Association, but did not attach them;

3. The agreement was a mind-numbing 11 page single-spaced document;

4. The agreement was incomprehensible to the average installer, and perhaps the average lawyer, chocked full of legalese. Even if an installer wanted to read it, Mr. Samaniego’s first language wasn’t English and he was far from fluent in English, and;

5. The agreement was one sided, because declaratory and injunctive claims (i.e. claims an employer might bring) could be brought in court rather than arbitration.

Arbitration agreements signed before a dispute arises – i.e. with hiring or routinely in the course of employment – just aren’t fair. Employees are taken unfair advantage of. They need a job, so they’ll sign anything, especially an incomprehensible 11 page agreement. They aren’t going to hire a lawyer to read this arbitration agreement, just like they won’t hire an accountant to read their W-4 or tax documents. They will sign what they must in order to go to work and collect a paycheck. The court made the right decision by finding this arbitration agreement unfair and unenforceable. The government should put an end to these oppressive agreements!

Jody I. LeWitter June 20, 2012

As part of employers’ end run around employees’ right to a jury trial, not only are employers making employees sign mandatory arbitration agreements, but they are trying to make the courts forfeit their right to even examine these agreements to see if they are illegal. Here CantorCO2e argued that its agreement does just that, but its agreement is so vague and unclear, and its arguments so tenuous, that the court rejected this proposition.

In order for an employer to take away the employee’s right to have a court determine whether an arbitration agreement is valid, it must do so in a way that is “clear and unmistakable.” Here, there are multiple reasons that the alleged attempt to take away these rights is not clear and unmistakable. It is important to note – for the future – that the court here limited its holding to the facts of this case, leaving employers multiple avenues by which they can strip a court of its right to judge the employer’s arbitration agreement and give this right to the employer’s hand pick and paid arbitrator. How this plays out in the future remains to be seen, but taking away a court’s right to review this important matter is dangerous and should be remedied by legislation if necessary.

After finding that the court has the right to determine whether CantorCO2e’s arbitration agreement was unconscionable, the court went ahead and found that it was unconscionable on a number of grounds:

1. Ajamian had no real bargaining power as Ms. Ajamian had already worked for the company for ten years and was required to sign the agreement to obtain compensation she had already been promised;

2. The agreement prohibited Ms. Ajamian from obtaining punitive or special damages which she might be entitled to under the law and permitted CantorCO2e to obtain liquidated damages, which are akin to punitive damages!;

3. The agreement mandated that New York law apply to this California employee without providing any apparent nexus to New York law; and 4. The agreement made Ms. Ajamian liable to the company for fees without making the company mutually liable to Ajamian for fees.

Courts need to stand up for employees’ right to basic legal protection by a court of law, and, at the same time stand up for a fair, public, and egalitarian justice system, rather than a hidden private system of justice riddled with favoritism towards employers and companies. This case reached the right holding but could have done with a stronger voice for fairness!

Jody LeWitter

March 21, 2012

Here Volt started out by providing its arbitration agreement to Mr. Mayers on a take-it-or-leave-it basis. Second, Volt failed to shed light upon the arbitration rules it required Mr. Mayers to follow should any case wind up in arbitration. Instead, it simply told Mr. Mayers that any arbitration would be governed by “the applicable rules of the AAA [American Arbitration Association]”. Volt neither provided a copy of these rules to Mayers, nor did it tell him how or where to obtain such a copy himself. The court characterized these errors are procedurally unconscionable.

To top it off, Volt’s arbitration agreement mandated that the arbitrator may award costs and attorney’s fees to the prevailing party. If Volt had a lawyer, Volt would have known that this was an absolute no-no. The Fair Employment & Housing Act (FEHA) prohibits a court from awarding fees to an employer (for claims governed under the act such as covered employment discrimination or retaliation claims) unless the claims were frivolous, unreasonable and without foundation. Here Volt changed this standard of the law to favor the employer.

This case is a yawner – except it highlights – again – how employers just can’t seem to play by the rules in their attempt to force arbitration agreements down their employees’ throats!

Jody LeWitter March 14, 2012

Jody LeWitter November 20, 2011

After Ms. Zullo was fired, she filed a lawsuit in court. Inland sought an order to send her case to arbitration. The trial court ordered that the case be sent to arbitration. However, the Court of Appeals reversed, holding that the arbitration agreement was unconscionable. Zullo v. Superior Court, 197 Cal. App. 4th 477 (2011).

It is getting rather tiresome reading all the ways in which employers heavy handedly force employees to “agree” to arbitrate their claims, as well as all the ways in which the employers attempt to manipulate the arbitration process to favor the employer. Even though courts generally keep overturning such overreaching agreements, employers keep promulgating them. The reason is because most employees don’t always have the resources and where-with-all to hold the employer to the letter of the law. Employees are thus required -again and again – to contest these unfair, unequal and illegal arbitration agreements. Here the Court found that the agreement was procedurally unconscionable where the rules weren’t clear from the face of the handbook and the situation was really a take-it-or-leave-it one. Interestingly, the Court also found that no testimony need be presented to prove this unconscionability as the handbook “speaks for itself.”

The Court also found that the agreement was substantively unconscionable because it altered the law (here the statute of limitations) in favor of the employer, made up timelines (e.g., respond to the employer within 10 business days) to the detriment of the employee, and applied to claims an employee would bring, but not claims an employer might bring.

I can only wish Ms. Zullo the best of luck pursing her claims in state court, where they belong.

Jody LeWitter September 7, 2011

Class arbitration waivers are at the heart of the US Supreme Court’s decision in Concepcion. At issue in the case was a rule, established by the California Supreme Court in a 2005 opinion, Discover Bank v. Superior Court (2005) 36 Cal.4th 148, that class arbitration waivers in mandatory pre-dispute arbitration agreements are per se unconscionable, meaning that even if someone signed such an agreement, a court would not enforce it.

The plaintiffs in Concepcion had been charged $30.22 in sales tax after being provided a supposedly free phone from AT&T. They filed a class action against AT&T for false advertising and fraud by charging sales tax on phones it advertised as free.

AT&T sought to move the class action into arbitration on the basis of a mandatory pre-dispute arbitration agreement requiring that claims be brought in the parties’ individual capacities, prohibiting class proceedings. Both the trial court and the Ninth Circuit held that, based on the California Supreme Court’s Discover Bank decision, the arbitration agreement was unconscionable, meaning that they would not enforce it, allowing the class action to proceed through the court system.

In its opinion, authored by Justice Scalia, the Supreme Court overturned the lower courts’ decisions. The Court held that California’s Discover Bank rule refusing to enforce class arbitration waivers in mandatory pre-dispute arbitration agreements was preempted by the Federal Arbitration Act.

States can still hold class waivers in arbitration agreements unconscionable, and thereby unenforceable, if they go through the normal steps required in an unconscionability analysis of contracts. While this is more burdensome than the blanket Discovery Bank rule overturned by Concepcion, it can be done. The California Supreme Court, in its Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 decision, articulated several factors that go into how a court is to determine unconscionability beyond traditional unconscionability analysis, including (1) neutral arbitrators; (2) more than minimal discovery; (3) a written decision by the arbitrator; (4) all types of relief otherwise available in court; and (5) not requiring employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration process.

Have you signed an arbitration agreement? We recommend consulting a lawyer to determine how any arbitration agreements may affect your claim. Contact us for a consultation. For more information, please consult our article on mandatory pre-dispute arbitration agreements and the Concepcion case here.

Darin Ranahan July 6, 2011

Then came the US Supreme Court in Rent-A-Center, West, Inc. v Jackson, 130 S. Ct. 2772 (2010) and poked a rather major hole in this important safeguard.

Rent-A-Center, interpreting the FAA, held that – where the arbitration agreement itself took this important safeguard away from the courts and assigned it to the arbitrator – the arbitrator holds all the power to rule on whether or not the arbitrator gets to hear the case (i.e., the existence and enforceability of the agreement).

Basically, the US Supreme Court permitted the employer to require an employee not only to give us his or her access to the courts, but to require the employee to give up the important checks and balances of holding out for a judge to determine whether the case must go to arbitration. The Court held that the very arbitrator who will earn significant income from presiding over the case gets to decide whether or not the arbitrator keeps the case or loses the case to the court system. Talk about the fox guarding the hen house!!

It is important to note a few parameters of this ruling: (1) although the ruling is the pronouncement of the highest court in the land, it is unclear how the California courts will interpret the CAA, and we can only hope they will do so in a more honest and forthright manner, with at least a bit of concern for the employees whose hands are tied by this absurd ruling, and (2) the US Supreme Court did leave open some possible limitation to this ruling, by noting that the employee in Rent-A-Center did not specifically claim that this provision permitting the arbitrator to rule on the existence and enforceability of the agreement, as applied to this provision, made this provision unconscionable.

Although there are many fair minded arbitrators out there, it is simply an inherent and untenable conflict of interest to permit the very arbitrator who has a vested economic interest in the outcome, to rule on whether or not the case should be heard by the arbitrator. Let’s hope the courts interpret the CAA differently and take a second look at this precipitous ruling.

Jody LeWitter January 3, 2011

In Trivedi v Curexo Technology Corp. (Cal. Court of Appeals, October 2010), the court looked first at whether the agreement was “procedurally unconscionable” (i.e. whether the manner in which the employer obtained the agreement was so unfair that it was illegal). Curexo presented Mr. Trivedo with the arbitration agreement in a take-it-or-leave-it manner, requiring that he arbitrate all claims that may arise in the future, using American Arbitration Association (“AAA”) rules without providing him with a copy of the rules. The court found the failure to provide the rules made the procedure procedurally unconscionable.

Next the court looked at whether the agreement was “substantively unconscionable” (i.e. whether the actual terms of the agreement were so unfair that it made the agreement illegal). Curexo’s agreement contained two terms that the courts had already frowned upon, so it was little surprise that the court found the terms unconscionable. The first was changing the law to make it easier for the company to collect attorneys’ fees against the employee, should the employee lose his claim. The second was allowing a party to by pass the so-called mandatory arbitration process for claims generally brought by employers, thus making the arbitration mandatory for employees but not for the employer.

As with almost all arbitration decisions, this one doesn’t set forth clear precedent for the future, because most arbitration agreements contain slightly different language and are presented to the employee in slightly different manners. One thing that does seem clear: until the legislature steps in and bans mandatory employment arbitrations, cases interpreting arbitration agreements will keep on coming.

Jody LeWitter November 15, 2010

On October 12, 2010, the California Court of Appeals did what it could to limit the impact of this holding and raised some very good issues while doing so. Addressing a different set of facts involving potential arbitrator bias, it ruled the other way, distinguishing the facts from Haworth. In Benjamin, Weills & Mazer v. Kors, A125732, the arbitrator failed to disclose that he regularly represented law firms in fee disputes, in a case involving just such a fee dispute, i.e. he did not disclose that he normally and currently represents one side in the very type of case before him. The Court of Appeals held that the arbitrator should have disclosed this. The court held that this business relationship “could reasonably cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” The Court went on to approve of a broader disclosure for an arbitrator than what is required for a judge, and to analyze the different circumstances and interests of arbitrators and judges. Explaining that since arbitrators have their own business interests, and that private arbitration as a whole “is a commercial enterprise”, the situation is different than the judicial system. (Indeed, there are other reasons to provide a higher level of scrutiny to arbitrator bias than judicial bias. For example, an arbitrator is the gatekeeper and fact finder, judge and jury, whereas in a court preceding the litigants normally have the right to a jury to act as the ultimate fact finder instead of the judge).

These two cases exemplify a problem that occurs every day in arbitrations. Arbitrators aren’t necessarily neutral; and it is difficult to even find out what an arbitrator’s biases are. Discloses are minimal and sometimes intentionally obfuscate the arbitrator’s bias. In employment cases, where the employer often mandates an arbitration without the employee having any free choice and where the employer often hand picks the panel from which the arbitrator will be selected, this lack of transparency and choice is especially troubling. The legislature should promulgate legislation requiring neutral panels of arbitrators and rigorous disclosures of biases. This should apply not only to situations covered by Kors but also by situations covered by Haworth. After all, the arbitrator is the ultimate fact finder and in the exact same position as a jury. There is no doubt that a juror could be asked to disclose and discuss the very biases referred to in Haworth, i.e. whether the fact that he was censured for sex discrimination and harassment against court staff might result in bias in a case involving a female plaintiff bringing a claim. Unless and until the legislature fixes this problem, we’ll have to limp along, doing the best we can to probe arbitrator biases and make pre and post arbitration motions to disqualify arbitrators and set aside arbitration results where necessary. The Kors case will assist in this process but victims of discrimination and other litigants deserve more.

Jody LeWitter Siegel & LeWitter October 18, 2010