Arbitrating Disputes With Employees: Three 2011 Cases Refine Standards for Arbitration Agreements in California


California may have more legal protections for employees than any other state. Many employers have decided that one of the ways to streamline the dispute resolution process and minimize possible legal exposure is to require all employees to arbitrate their disputes with them. The growing perception among employers is that experienced arbitrators can reach decisions more fairly and quickly than judges and juries, and that view may well be accurate.

Since 2000, when the California Supreme Court established the minimum requirements for predispute arbitration agreements with employees in the seminal case of Armendariz v. Foundation Health Psych Care Services, Inc., courts continue to define, and refine, the standards by which arbitration agreements can be enforceable in California. In Armendariz, the Supreme Court decided that, at a minimum, predispute employee arbitration agreements cannot limit the damages employees are otherwise entitled to receive, the arbitrator must be a neutral individual, the arbitration decision award must be set forth in writing and subject to minimal judicial review, and employees cannot be required to pay more in arbitration costs than they would incur if they file a complaint in court.

Like all contracts, the terms of an arbitration agreement cannot be unconscionable. An arbitration agreement is not enforceable if it is both procedurally and substantially unconscionable. A written agreement is procedurally unconscionable if it is “oppressive” or creates “surprise” due to unequal bargaining power, and is substantively unconscionable if it is “overly harsh” or “one sided.” Recent court decisions continue to explain how to know an unconscionable arbitration agreement “when one sees it!”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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