In the previous installment, we looked at how the ruling of the Supreme Court of the United States in Concepcion pre-empted state laws and judgments which restricted the enforceability of mandatory arbitration clauses in employment agreements. In this final part of the series, we look at the after-effects of Concepcion.
Armendariz on borrowed time
As discussed in the previous segment, Concepcion asserted the pre-emptive force of the Federal Arbitration Act (FAA) against any state law that subjects arbitration agreements to higher standards of enforceability than other contracts. Since Concepcion, both state and federal courts in California have recognized that Concepcion abrogates rulings which limit arbitration agreements on grounds of public policy or fairness. Although Armendariz has not yet been formally abolished, the ruling in Broughton-Cruz, on which much of the public policy reasoning in Armendariz was based, has been specifically cited as being abolished by Concepcion. It is only a matter of time before Armendariz follows the same fate.
Marmet Health Center and public policy
It is not only in the California courts that the effects of Concepcion have surfaced. Since Concepcion, the Supreme Court had the opportunity to revisit the issue of public policy limitations on enforceability of arbitration agreements in Marmet Health Care Center, Inc. v Brown. In Marmet Health Center, the court came out strongly against using public policy considerations to defeat the pro-arbitration policy of the FAA, or avoid pre-emption. In doing so, the ruling relied strongly on Concepcion. Armendariz relied on such public policy grounds — specifically whether arbitration is the right venue in cases of nonwaivable statutory rights — when setting out the five fairness factors, but Marmet Health Center forecloses this judicial reasoning, irrespective of the sincerity behind it.
Concepcion ruled that the FAA pre-empts state laws that attempt to limit arbitration agreements in almost all contractual situations. As a result, the fairness factors employed in Armendariz and other public policy grounds which limit the enforceability of mandatory arbitration clauses in employment agreements cannot survive Concepcion.