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Mandatory
Arbitration: Uncertain Times
(last updated February 1999)
Employers are often hearing
about the advantages of arbitration over litigation: it is
likely to be faster and much less expensive. Usually, the
arbitrator is also an expert in the field of employment law,
and will not be as susceptible as juries to emotional arguments
that might nullify legal principles. However, this last reason
is why plaintiffs’ lawyers love juries—the emotional issues
often represent the real dollar potential of a case. Plaintiffs’ lawyers
have always waged war against arbitration. But recently,
they have been winning some of the major battles, leaving
everyone wondering about the future of mandatory arbitration
agreements.
Recently, a number of conflicting court decisions affecting
California employers have been issued. These cases have focused
on discrimination claims and the importance of a jury in seeking
relief for alleged civil rights violations.
Federal Courts: First,
the Federal Court of Appeals
held that a mandatory arbitration
provision unilaterally placed
by management in an employee
handbook was not a knowing
and voluntary waiver of an
employee’s right to a jury
trial. The court was concerned
that the employee may not have
read the provision, and also
did not have an opportunity
to accept or reject the arrangement.
Then, in May, 1998, the same
court invalidated a detailed,
stand-alone arbitration agreement.
The employee signed the agreement
as part of her acceptance of
various terms and conditions
of her employment offer. The
court held that this also was
not truly voluntary, since
the person had to choose between
accepting employment and retaining
her right to a jury trial for
discrimination claims. The
court indicated that one of
the main flaws of the arbitration
agreement was that it did not
give the employee the chance
to sign an arbitration agreement
that excluded federal discrimination
claims. This ruling suggested
that an arbitration agreement
with an option for excluding
such claims should be enforceable.
California Courts: Meanwhile,
the California courts were
issuing conflicting rulings.
In September 1998, the State
Court of Appeal dismissed a
sexual harassment suit by an
employee who sought to avoid
an arbitration provision contained
in an employee handbook. The
court held that signing a handbook
receipt that included a statement
agreeing to abide by the company’s
mandatory arbitration process
was an enforceable promise
to arbitrate.
Back to the Federal Courts: In
December 1998, the same Federal
court took the matter a step
further and held that the Federal
Arbitration Act—a law that
favors arbitration—simply did
not apply to employment agreements.
Accordingly, the court held
that the arbitration agreement
involving the employee was
unenforceable. This issue is
expected to be appealed to
the U.S. Supreme Court.
Possible Legislation: The
California legislature has
put employment arbitration
agreements in its gun-sights.
Legislation has already been
proposed to invalidate arbitration
agreements with employees that
are signed before a dispute
has arisen.
What Can Businesses Do Now? While
the wrangling over this issue
continues, mandatory arbitration
of certain employment issues
should still be valid. If you
do want to use an arbitration
agreement, it must be properly
drafted to maximize the degree
of enforceability. Among other
things:
- Do not hide the arbitration
provision in an employment application or just drop it
into a handbook.
- Use a stand-alone agreement
that fully spells out the impact of the arrangement.
- Provide an option to exclude
federal discrimination claims.
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| This article is a general
overview of the subject matter at the date that it was last
updated, and is not meant to provide professional opinions
regarding any specific case, matter, or set of facts, or
to substitute for the professional advice of Waag and Co.
Instead, please contact Susan S. Waag, Esq. for additional
information. |
