Arbitration agreements have become a common feature in employment contracts across the United States, including California. These agreements require employees to waive their right to sue their employers in court and instead resolve disputes through arbitration.
While arbitration can offer benefits such as speed and efficiency, there has been growing concern that such agreements can harm employees by limiting their ability to seek justice for workplace violations.
This article will explore the use of arbitration agreements in California employment law cases and the implications for both employers and employees.
What is an Arbitration Agreement for Employees?
An Employment Arbitration agreement is a contract between an Employer and Employee that forces the parties to a dispute (wrongful termination, harassment, discrimination, etc) to resolve their disputes outside of court and before a private arbitrator. In short, this is an agreement to not go to court before a judge and jury but to instead submit your complaints and argue before an Arbitrator who will decide your case.
Why do employers use Arbitration agreements in California?
An Arbitration agreement is usually legally binding, however as disused below not always. Employers often require employees to sign an arbitration agreement at the beginning of their employer to prevent them from suing the company in court. Arbitration agreements are unfavorable to employees because they deprive them of their day in court.
Do I have to sign my Employment arbitration agreement to work?
Effective January 1, 2020, AB51 prohibits California employers from requiring employees to sign an arbitration agreement as a condition of employment.
AB-51 bans mandatory arbitration agreements as a condition of employment, continued employment, receipt of work-related benefits, or waving any rights to pursue a FEHA or Labor Code claim. It also prohibits employers from threatening or retaliating against an employee for refusing to sign an arbitration agreement. Although it doesn’t prevent an employer/employee from entering into such an agreement voluntarily. The AB-51 law will apply to only contracts entered, modified, or “extended” on or after January 1st, 2020.
What this means is an employer cannot refuse to hire you if you refuse to sign the arbitration agreement. Usually, this scenario comes up after you interview, receive a job offer, and being onboarding with paperwork.
I was fired and I’m pretty sure I signed an Arbitration Agreement – what are my options?
Regardless of if you have signed an arbitration or not, you should always seek the advice of a California employment attorney after being terminated. The three most basic options are the following:
- Submit to arbitration and begin the process to have an evidentiary hearing before a retired Judge or Attorney.
- File the complaint in state court with the intention of filing an Opposition or Motion to Compel Arbitration
- Explore resolution through direct settlement discussions or through a neutral third party by way of mediation.
Employers do not always seek to litigate disputes when there are arbitration agreements, and a quick resolution is possible. Alternatively, the arbitration will still let you put on evidence and call witnesses to a righteous case if that is indeed the venue where you end up. Eldessouky Law has been successful in both the courtroom and private arbitrations.
Contact our office at 714-409-8991 or fill out one of our contact forms online.
Who Pays for Arbitration?
The employer is responsible for paying the fees.
Are There Ways to Avoid Arbitration if I Already Signed the Agreement?
There are three primary ways you can avoid being forced to arbitration after signing the agreement.
- Filing Motions in Court – Opposition to Motion to Compel Arbitration
- Establishing your case involves a claim of Sexual Harassment
- Lifting Arbitration if your Employer fails to pay the fees
Filing Motions – Opposition to Motion to Compel Arbitration
The terms of agreement – are they conscionable?
In California, if the terms of a contract are unconscionable, the contract is unenforceable. So, before an employer can force an employee to Arbitration, the terms of the agreement must comply with contract law. A court may refuse to compel an employee to Arbitration if it finds that it is a bad bargain or that the company employer could have done a better job with the agreement. This principle of conscionability ensures that contracts do to impose terms that are overly harsh, unduly oppressive, or so one-sided as to shock the conscious.
Procedural Substantive vs Unconscionability
To avoid arbitration by way of an unfavorable contract, the terms of the agreement must be both procedurally and substantively unconscionable.
Think of it this way, procedural conscionability has to do with the way you signed agreement and circumstances surrounding the actual signing of agreement while substantive conscionability has to do with the specific terms and possible results of the arbitration hearing itself.
Procedural conscionability may render an agreement unenforceable if an employee is induced to sign the agreement through ‘sharp practices’ and ‘surprises.
Substantively unconscionable may render an agreement unenforceable if the employer drafts an agreement that is overly one sided or unfair to the employee. Examples of this is where an employer shortens statutory limitation periods or shifts the responsibility of paying for the arbitration itself. Another example is if the employer knows the employee cannot read or understand English and provides no translations.
The party moving to compel arbitration must show the parties “agreed upon the same thing in the same sense.” Avery, 218 Cal. App. 4th at 66 (citing Civ. Code § 1580.) “If there is no evidence establishing a manifestation of assent to the ‘same thing’ by both parties, then there is no mutual consent to contract and no contract formation.”
An arbitration clause, like any contract, is unenforceable if it is both procedurally and substantively unconscionable. “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal. 4th 83, 114. “There is a sliding scale where the greater the evidence of procedural unconscionability, the less evidence is needed of substantive unconscionability.” Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1406.
Getting out of an arbitration agreement for Sexual Harassment Claims
A recent law in the change now prohibits claims of sexual harassment to be compelled to Arbitration.
A second way you can avoid arbitration is if the cases involves sexual harassment. President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. This is now also the law in California. So in short, even if you signed an arbitration agreement, if the act of sexual harassment takes place in 2023, you can still proceed to court and have your matter heard before a jury.
Lifting Arbitration because the Employer failed to pay fees.
Recently California passed a law that puts pressure on employers to timely pay the fees associated with the arbitration. Again, your employer is responsible for paying the arbitrator their fees. If they fail to do this, you can go back to court.
Remember, the employer is responsible for paying the fees associated with Arbitration. The only fees or costs an employee is responsible for are those similar to what they would incur had they filed in court. If the Employer fails to pay their share, Arbitration can be avoided altogether.
CCP § 1281.98 is similar to Section 1281.97 except it applies when the defendant employer fails to pay the fees or costs required to continue the arbitration proceeding.
A Defendant is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration under CCP §§ 1281.97 or 1281.98. CCP § 1281.97 states, in relevant part, “if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration under Section 1281.2.” (Emphasis added.)
Why is Arbitration not the best option for Employment and wrongful termination cases?
A March 2011 study of employment arbitration outcomes in the Journal of Empirical Legal Studies found employees won in arbitration 21.4% of the time vs. 36.4% in federal court vs. 57% in state court: https://ecommons.cornell.edu/handle/1813/75272 .
This study seems far more in line with actual arbitration outcomes.
If I am not in court, where am I exactly?
The three largest companies that organization private arbitrations are the American Arbitration Association, JAMs, and ADR.
The most important aspect to proceeding in arbitration versus court is to first determine which rules government procedures and discovery. This information will usually be mentioned in the arbitration agreement and will usually list the Code of Civil Procedure, AAA Rules, or JAMs rules.
How is the evidentiary hearing in Arbitration different than a trial in a courtroom?
Absent a jury, most elements of putting on a case in chief are relatively the same in Arbitration. The parties will usually be asked if they want to provide opening and closing arguments.
Can you appeal a decision or Judgement from Arbitration?
In general, judicial review of an arbitration award is extremely limited. As the California Supreme Court explained in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 6 (“Moncharsh”), “an arbitrator’s decision is not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties.” This is because parties who enter into arbitration agreements are presumed to know the arbitrator’s decision will be final and binding; “arbitral finality is a core component of the parties’ agreement to submit to arbitration.” (Id. at 10.) Courts do not review the validity of an arbitrator’s reasoning, and, while Code of Civil Procedure §§ 1286.2 and 1286.6 set forth grounds for vacating or correcting an arbitration award, “ ‘[a]n error of law is not one of those grounds.’ [Citation.]” (Moncharsh, at 11, 14)
What if the Arbitrator got the law wrong?
Errors of law are not reviewable. (Moncharsh, supra, at 11) Arbitrators need not follow the law and may base their decisions on “broad principles of justice and equity.” (Id.) Yet, even in the face of the magnitude of erroneous conduct that must be proven in order to warrant this Court’s invalidation of the arbitration award, Defendants contend that one piece of evidence – the admissibility of which is still under debate – may or may not have figured into an otherwise lengthy, detailed, and thorough analysis of what was, overall, determined by the Arbitrator to be heinous, discriminatory, harassing and unprofessional behavior on the part of Defendants. They have given no “clear expression of illegality or public policy” that might even approach the standard set for the need for judicial intervention
What does it take to cancel or vacate an Arbitration Award?
Generally, the result of arbitration is final and binding, in other words, you cannot appeal. However, in very limited situations a court can vacate the award and send the parties back to arbitration to do it again.
The court may vacate an arbitration award only on the grounds set forth in Section 1286.2. (Id. at p. 12–13.) Section 1286.2 provides that the court shall vacate the award if it determines any of the following:
- The award was procured by corruption, fraud, or other undue means;
- There was corruption in any of the arbitrators;
- The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator;
- The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted;
- The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefore or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title; or
- An arbitrator making the award either failed to disclose a ground for disqualification or was subject to disqualification but failed upon receipt of timely demand to disqualify himself or herself.