The Supreme Court of the United States ruled in 2011 in AT&T Mobility v Concepcion, a landmark federal case on arbitration agreements, that state law cannot impose restrictions on arbitration agreements that are subject to the Federal Arbitration Act, even on public policy grounds. This article is the first part of a four-part series discussing the impact of the Concepcion ruling on the arbitration of employment disputes in California.
Federal Arbitration Act
Section 2 of the Federal Arbitration Act (FAA) governs the enforceability of mandatory arbitration clauses in commercial contracts. It provides that such clauses are valid, enforceable and irrevocable, with one exception — they are subject to the same grounds for revocation as any contract would be under contract law. The FAA represents the staunchly pro-arbitration view of the federal government, but the applicability of section 2 of the FAA to employment contracts and disputes involving inviolable statutory rights has been a matter of some dispute.
Armendariz: public policy and fairness factors
In 2000, the Supreme Court of California made an important ruling on the enforceability of mandatory arbitration agreements in employment contracts. The decision in Armendariz v Foundation Health Psychcare Services, Inc came to represent the fundamental attitude of California state courts on the subject. Armendariz clarified that arbitration agreements in employment contracts are enforceable, and that arbitration can be used to decide cases involving inviolable statutory rights, albeit subject to what have become known as “fairness factors.”
Five fairness factors
The five fairness factors cited in Armendariz were designed to protect employees with statutory rights from suffering a weakened position in arbitration proceedings, by creating a set of requirements before such claims could be fairly vindicated by arbitration. In order to satisfy the five fairness factors, the arbitration must provide:
A neutral arbitrator
More than minimal discovery
A written arbitration award
All forms of relief that are available in court
The prohibition of imposing unreasonable arbitration costs on employees
The court in Armendariz understood that the California state legislature retained the authority to limit the impact of the FAA on grounds of public policy. However, the ruling in Concepcion has blown a hole in the restrictions imposed by Armendariz on the enforceability of mandatory arbitration clauses in employment agreements. In the next segment of this series, we look at the Concepcion case in more detail.