• Arbitration Agreements: A Hot Topic in the Courts, But Are You Still Listening?
  • August 18, 2010 | Authors: Glen E. Kraemer; Kirstin E. Muller
  • Law Firm: Curiale Hirschfeld Kraemer LLP - Santa Monica Office
  • With a recent glut of United States Supreme Court and federal and state court decisions, arbitration is once again in the news.  After the California Supreme Court’s Armendariz case made arbitration in the workplace a more extensive (and expensive) proposition, many employers began to rethink the practice, while some continued to forge ahead.  Whether your organization has been arbitrating disputes with its employees for years or is just now considering implementing a program, here is what you should know about how recent cases are changing this area of the law:

    Arbitrating class actions is getting harder.  On April 26, 2010, the United States Supreme Court, in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. held that the Federal Arbitration Act (“FAA”) does not permit the imposition of class arbitration on parties who have not agreed to it.  In the Stolt case, corporate plaintiffs in the maritime industry sought to bring a class action lawsuit in a contract dispute with another company.  The Court held that where the arbitration agreement was silent (the parties in Stolt had actually stipulated that it was silent on the issue of class-wide claims) on class actions, the defendant could not be compelled to give up its right to defend the matter in court.  Stolt makes it clear that while parties are not required to expressly consent to arbitrate on a class-wide basis to win enforcement, written provisions are most compelling.

    Compelling arbitration of non-class claims is likely getting easier.  On June 21, 2010, the United States Supreme Court reviewed a decision from the Ninth Circuit Court of Appeals and, in keeping with tradition, found that the Ninth Circuit got it wrong.  In Rent-A-Center, West, Inc. v. Jackson, a discrimination case, Rent-A-Center sought to enforce its arbitration agreement with a former employee and move the case into arbitration.  In response, the employee argued that the  arbitration agreement, which he signed as a condition of employment, was unconscionable and unenforceable under Nevada law, because he was given no real choice and could not meaningfully assent to arbitration.  He asserted that the court, not the arbitrator should decide this issue.  The trial court and then the Supreme Court determined that language in the agreement that said that the “arbitrator, and not [court], shall¿resolve any dispute relating to enforceability¿” meant that an arbitrator, and not the courts, should decide the issue of unconscionability of the agreement and sent the case to arbitration.  This case reinforces the importance of clearly establishing the division of labor between the courts and the arbitrator in the arbitration agreement and broadly describing both the agreement’s scope and the arbitrator’s authority. 

    Even after Armendariz, arbitration agreements can be somewhat employer-friendly.  In Pearson Dental Supplies v. Superior Ct., the California Supreme Court reversed a trial court’s decision to throw out an arbitrator’s award favoring an employer.  The arbitrator dismissed the case at summary judgment because it was not filed within the time limits set in the parties’ arbitration agreement.  The arbitration agreement required the former employee to submit his age discrimination claim to arbitration within one year from the date of the alleged discrimination.  The former employee argued that this provision rendered the agreement unconscionable because under the Fair Employment and Housing Act, he should have essentially had two years for the claim ¿ one to file with the Department of Fair Employment and Housing, plus one to file the lawsuit.  The Court found that it was not unconscionable to limit the former employee’s right to have the DFEH review the claim.  However, the Court also found that the arbitrator had misinterpreted a tolling statute that would have changed the way the parties calculated the one year time limit and rendered the former employee’s claims timely.  Although courts do not usually review the legal analysis performed by an arbitrator, the Court found that where an arbitrator made a “clear error of law,” such review was justified.  The case suggests that employers may be able to create enforceable employer-friendly arbitration agreements and, in a limited number of cases, may even be able to return to the courts when arbitrators misapply relevant law.

    Stay tuned.  The U.S. Supreme Court recently accepted the Ninth Circuit’s decision in AT&T Mobility v. Concepcion for review.  In this case, the Ninth Circuit found that California law prohibits class action waivers and that decision makers should apply California law in determining unconscionability and not allow the FAA to preempt it.


    The California Supreme Court will also give us another arbitration decision.  In Sonic-Calabasas v. Moreno, it will decide whether an arbitration agreement can force an employee’s wage claims into arbitration before the Division of Labor Standards Enforcement (“DLSE”) can complete its administrative proceedings about the matter, and whether the FAA can be used to deprive the DLSE of jurisdiction.

    While the days of arbitration being “easy” are long over, these new developments suggest it is a good idea for employers to take a second look at their arbitration agreements.