Employers include arbitration agreements for one simple reason: for their employers to waive their right to a jury trial and instead litigate any claims related to their employment in front of an arbitrator. Many employers include arbitration agreements with the litany of new-hire paperwork employees need to sign prior to starting their new jobs. Whether mandatory or “optional”, most employees simply sign all the paperwork given to them without giving it much thought. It’s rare, if not unheard of, for an employer to explain the consequences of a signed arbitration agreement to their employees. Thus, most employees realize they signed an arbitration agreement only after filing a lawsuit in court.
The advantages of arbitration for employers are obvious. In arbitration, a neutral arbitrator takes the place of both judge and jury, deciding questions of law and fact. Arbitrators often tend to be retired judges and easily command rates north of five hundred dollars per hour. Employers must pay the arbitrator’s fees for an arbitration agreement to be valid in California. Yet despite the extra cost, which can easily exceed $100,000 by the end of the arbitration process, employers deem it necessary to keep employment claims out of a traditional courtroom and away from a jury.
Arbitration agreements tend to favor employers by limiting discovery and mandating much shorter deadlines for oppositions to moving papers, especially to dispositive motions like motions for summary judgment. Although most arbitration agreements won’t expressly make these limitations, by stipulating the use of a specific alternative dispute resolution (ADR) company, such as JAMS, the employee is forced to rely on the rules set by that ADR company. JAMS, for example, severely limits the discovery available to either party and has much shorter deadlines to respond to a dispositive motion than the California Code of Civil Procedure (CCP). The curtailed discovery favors the employer, which often already had direct access to most, if not all, of the witnesses and documents needed for litigation. Whereas the employer typically needs to depose just the plaintiff, or employee, the employee often needs to depose more witnesses, such as a supervisor, HR personnel, and/or co-workers. Thus, limiting discovery, especially the number of depositions available to a party, will favor the employers.
As a result, employment lawyers in Los Angeles, CA, and throughout the state of California have been fighting about the validity of employment arbitration agreements for as long as employers have been using them. Though some arbitration agreements will be held invalid for various legal reasons, the vast majority of arbitration agreements will be deemed enforceable.
The Legality of Mandatory Arbitration Agreements
The California State Assembly weighed in on the controversy by introducing AB 51 and Governor Gavin Newsome signed it into law on October 10, 2019. AB 51 amended Labor Code 432.6 and barred mandatory arbitration agreements within the employment context. It also mandated criminal and civil penalties for employers that refused to comply.
Almost immediately, the United States and California Chambers of Commerce, along with interested business organizations, sought and received an injunction preventing the California attorney general and other state officials from enforcing AB 51. A federal judge in the Eastern District of California agreed with the who’s who of big law employment attorneys representing the Chambers and business allies that the Federal Arbitration Act (FAA) preempted AB 51 and that AB 51 interfered with the objectives of the FAA. That court similarly issued an injunction preventing enforcement of any civil or criminal penalties. That decision was appealed.
On September 15, 2021, the 9th Circuit Court of Appeals held that the FAA does not preempt AB 51 as it set aside most of the district court’s orders. In an impressive feat of legal gymnastics, the 2-1 majority concluded that civil and criminal penalties indeed interfere with the FAA’s purpose and are thus unenforceable. Yet, an employer can be penalized for requiring an arbitration agreement as a condition of employment. In all likelihood, the ruling will be appealed to either a larger panel within the 9th Circuit, or more likely, the United States Supreme Court.
Nothing Stops Employers and Employees From Voluntarily Agreeing to Arbitration
While the final fate of SB 51 remains unknown, nothing stops employers and employees in California from voluntarily agreeing to arbitrate all claims arising out of the employment relationship. Even prior to SB 51 many employers used “optional” arbitration agreements knowing that the vast majority of employees will simply sign the agreements without questions. The arbitration agreements are often included in new-hire packets, as part of a much larger package of ordinary documents new hires must sign. The agreements are also often included in employee handbooks, which include acknowledgments stating that the employee received and reviewed the handbook, and that they agree to the voluntary arbitration agreement.
Since a signee has an obligation to fully understand the consequences of any contract they enter into, pleading ignorance of the consequences or even of the fact that such a contract was signed, is never going to be enough to invalidate it. Although most employment lawyers will fight to invalidate any arbitration agreement signed by their client, the likelihood of success is very low.
Look Through Your New-Hire Paperwork Thoroughly
To ensure that you are not forced into arbitration, look through all your new-hire paperwork thoroughly and have it reviewed by an employment attorney, if necessary. If an arbitration agreement is voluntary, or not a condition of employment, you can simply leave it blank. If the arbitration agreement is a condition of employment, in all likelihood you have to agree to it to accept employment.
Have questions about the validity of an arbitration agreement your employer wants you to sign, call us at 213-618-3655 and one of our experienced employment lawyers can guide you.
