Recent Cases Provide Helpful Reminders Regarding Best Practices (and Pitfalls) with Employment Arbitration Clauses

by Fenwick & West LLP

Scrutiny of mandatory, pre-employment arbitration agreements continues before California state and federal courts. Several recent decisions provide helpful reminders for employers drafting, reviewing or enforcing arbitration clauses:

  • DO consider a class action waiver, but remember that Private Attorneys’ General Act (“PAGA”) claims are neither waivable nor subject to mandatory arbitration. In Franco v. Arakelian Enterprises, Inc., a California appellate court required a waste truck driver to arbitrate his individual wage and hour claims, dismissed his class claims, and stayed his PAGA claims until resolution of the arbitration. The court followed the California Supreme Court’s lead in Iskanian v. CLS Transportation (see July 2014 FEB) that waivers are valid as to class claims but not as to PAGA claims, in which the employee acts as a representative of the state.
  • DON’T overlook the impact of designated rules; if important, DO designate person to decide issues of arbitrability. In the absence of a specific agreement to the contrary, by default, courts decide whether claims are subject to arbitration. In Universal Protective Service v. Superior Court, the employer designated use of the American Arbitration Association’s employment arbitration rules under which the arbitrator was responsible to determine whether the agreement permitted class-wide arbitration. Thus, the court rejected the employer’s request to compel arbitration of the plaintiff’s individual claims and dismiss the class claims, instead ordering the issue to arbitration for resolution.
  • DO include a savings clause and, if arbitration is a priority, DON’T override the savings clause with contrary language. A savings clause – one that allows a court to sever from the agreement any unenforceable provision – is a smart way to preserve the enforceability of an arbitration provision. As recently shown in Securitas Security Services USA, Inc. v. Superior Court, however, the clause is only as effective as its drafting. There, the arbitration agreement included a savings clause, a waiver of class and representative claims (the “Waiver Provision”), and a statement that the savings clause did not apply to the Waiver Provision. The court determined it was unable to sever the unenforceable waiver of representative claims (see above discussion of Franco) from the agreement, found the entire agreement unenforceable, and permitted the employee to proceed with his claims in court.
  • DO be up front with employees about the arbitration obligation. In Serafin v. Balco Properties Ltd., LLC, the employment arbitration agreement was in a two-page, stand-alone document and, as a matter of process, a Serafin HR representative would present the agreement to the employee and be available to respond to any questions. An employee’s later attempt to challenge the enforceability of her arbitration agreement failed. The court found the arbitration obligation was not a surprise buried among other terms and the employer provided immediate avenues for the employee to ask questions and request a copy of the arbitration rules, so the court severed one problematic provision regarding attorneys’ fees and enforced the remaining agreement.

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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