• State Supreme Court Sets Ground Rules For Mandatory Employment Arbitration Agreements
  • August 13, 2003 | Author: April Lee Walter
  • Law Firm: Rutan & Tucker, LLP - Costa Mesa Office
  • On August 24, 2000, the California Supreme Court published its much anticipated opinion in Armendariz v. Foundation Health Psychcare Services, Inc. -- the lead case of six cases which have been pending review by the Court on issues related to the validity of mandatory employment arbitration agreements. In its decision in Armendariz, our high court held employers may require employees to agree to arbitrate employment-related disputes, including claims brought under the state and federal antidiscrimination statutes, so long as the arbitration meets certain minimum requirements.

    The minimum standards identified by our Supreme Court for the arbitration of statutory employment claims are:

    1. A neutral arbitrator;
    2. Adequate discovery;
    3. A written decision that reveals the essential findings and conclusions on which the award is based;
    4. Allowance for limited judicial review; and
    5. Provision for payment by the employer of the arbitrator's fees and any other expenses unique to arbitration.

    Regardless whether an employer's mandatory arbitration agreement meets these minimum arbitration-standards, the agreement may be deemed unenforceable, in whole or in part, if the employer includes self-interested provisions, such as:

    1. Any limitation on the remedies available in court, including punitive damages, equitable relief, or attorneys' fees;
    2. An explicit or implicit reservation by the employer of its right to sue the employee in court; or
    3. Any shortening of the applicable statutes of limitation.

    An employer also cannot limit an employee's right to file an administrative complaint with California's Department of Fair Employment and Housing (DFEH) or the federal Equal Employment Opportunity Commission (EEOC).

    In light of the Armendariz opinion, California employers should review their mandatory arbitration programs to ensure compliance with the minimum arbitration-standards identified by the State's high court, and to ensure that the program does not include any terms a court may find too one-sided so as to render the program unenforceable. Although this issue was not decided in Armendariz, employers also should review their arbitration agreements to ensure they clearly put employees on notice they will be required to arbitrate statutory as well as contractual and common law claims.

    California employers should further consider drafting their mandatory arbitration agreements to reference the California Arbitration Act (CAA), and not the Federal Arbitration Act (FAA). In 1998, the Ninth Circuit (the federal appellate court that covers the State of California) held, in Craft v. Campbell Soup Co. (9th Cir. 1998) 161 F.3d 1199, that employment agreements are not subject to the FAA. The United States Supreme Court recently granted review of, but has yet to decide, the issue whether the FAA can be applied to employment contracts. In Armendariz, the California Supreme Court recognized that the CAA, unlike the FAA, contains no exemption for any employment contracts, and in fact, specially defines the term "agreement" to include "agreements between employers and employees." Thus, while there is uncertainty whether the FAA even applies to employment contracts, the CAA unquestionably applies to employment arbitration agreements.