Labor Employment Law Blog

By Thomas Kaufman and Travis Anderson

In Sky Sports, Inc. v. Superior Court, (2nd Dist., Div. 3, Dec. 15, 2011) Case No. B233820, the California Court of Appeal held that a defendant does not waive its right to compel arbitration of a class action by waiting to file a motion to compel arbitration until the class has been certified, where some of the class members, but not the class representative, signed arbitration agreements with defendant.

In the seminal case Armendariz v. Foundation Health Psychcare, the Supreme Court of California established the standard for determining the enforceability of mandatory arbitration agreements for employees. Armendariz generally held that mandatory arbitration agreements were enforceable if they were mutual and did not "serve as a vehicle for the waiver of statutory rights." Armendariz set forth a number of minimum requirements that must be met for a mandatory employment arbitration agreement to be valid, including requiring a neutral arbitrator, providing for sufficient discovery, requiring a written decision adequate enough to allow judicial review, allowing for all remedies available in a judicial action, and not requiring the employee to pay unreasonable costs or fees. In the recent case Wherry v. Award, Inc., the Fourth Appellate District extended the Armendariz standard beyond the employment relationship and applied the same standard to mandatory arbitration agreements for independent contractors.

In Roman v. Superior Court, Case No. B209855, Gabriela Roman, a former employee in Flo-Kem's accounts receivable department, brought suit against Flo-Kem for alleged violations of the Fair Employment and Housing Act, including disability discrimination, as well as a claim for wrongful termination in violation of public policy. Before beginning her employment, Roman had signed a short arbitration agreement that was attached to the last page of her employment application. This arbitration agreement was a single paragraph clause which stated in pertinent part that "I agree, in the event I am hired by the company, that all disputes and claims that might arise out of my employment with the company will be submitted to binding arbitration." The clause also incorporated the rules of the American Arbitration Association ("AAA") in effect at the time. Further, the arbitration clause was the last paragraph of the seven-page employment application and clearly marked with a separate heading. Roman had initialed next to the clause, signifying that she had read it, in addition to signing the application.

On March 10, 2009, the California Second District Court of Appeal in Franco v. Athens Disposal Company, Inc., B203317 held that an arbitration agreement with class action waiver and Private Attorneys General Act (PAGA) waiver is unenforceable.

Although the advantages and disadvantages of arbitration will continue to be debated, the California Supreme Court has now provided parties with an option that makes arbitration more attractive.  Previously, one of the chief disadvantages of arbitration was that there was only restricted appellate review of any factual or legal error the arbitrator may have made.  However, on August 25, 2008, in Cable Connection, Inc., et al. v. DirecTV, Inc., the California Supreme Court held that parties to an arbitration agreement can agree to have an arbitrator's decision reviewed on the merits under California law if the parties provided for such review in advance in their agreement.

On April 1, 2008, in Metters v. Ralphs Grocery Co., the California Appellate Court provided guidance on what constitutes an enforceable arbitration agreement.  Samuel Metters was an employee alleging racial discrimination and harassment against his employer, Ralphs Grocery.  He claimed that a resolution dispute form with a binding arbitration clause was not an enforceable contract, despite his having signed it.  The Court agreed.

Every new hire faces a mountain of paperwork from Human Resources to sign on his/her first day of employment.  A frequent consequence of this "barrage of paperwork" is that one or two documents may be overlooked and not signed by the new hire.  If one of those documents happens to be an arbitration agreement, the California Court of Appeal ruled in Mitri et al. v. Arnel Management Co. et al. that the employer may not rely on handbook language that requires the employee to sign an arbitration agreement upon hire.

On January 19, 2006, the Second Appellate District of the California Court of Appeal decided the case of Gentry v. Superior Court (January 19, 2006). The issue before the Gentry Court was whether a class action waiver in a pre-employment arbitration agreement is enforceable under California law.

On August 4, 2005, in Grafton Partners, et al. v. Superior Court, the California Supreme Court refused to uphold a predispute jury trial waiver. In reaching this decision, the Court expressly overruled Trizec Properties, Inc. v. Superior Court, 229 Cal. App. 3d 1616 (1991) which previously held that predispute jury trial waivers were permissible even in the absence of statutory authorization.

Q. Are Mandatory Employment Arbitration Agreements A Good Idea?

A RECENT COURT OF APPEAL DECISION HIGHLIGHTS THE POTENTIAL BENEFITS OF ARBITRATION

It is no secret that litigation can be time-consuming and expensive. In an effort to contain potential litigation costs, many California employers have entered into arbitration agreements with their employees in which both sides agree that a private arbitrator, rather than a public court, will resolve employment related disputes. Compared to litigation, arbitration is often (but not always) quicker and less expensive. Thus, a well-drafted and legally enforceable arbitration agreement can be a useful, resource saving tool.

In recent years courts have debated the enforceability of class action waivers in arbitration agreements. A class action waiver is a provision in an arbitration agreement that expressly prohibits arbitration on a class-wide basis. Companies have tried to defeat class action lawsuits by compelling arbitration pursuant to arbitration agreements with class action waivers. The viability of this strategy has been tested in California with mixed results. For the last several years, California courts have found various class action waivers unenforceable. More recently, however, other California courts have upheld class action waivers, including a case decided just last month. The issue is now pending before the California Supreme Court.