1. Arbitration Agreements: What Are They?
Employers can agree that they and any employees who enter into an arbitration agreement will resolve their differences before a private arbitrator instead of civil court. There are many different arbitration companies to choose from, but the American Arbitration Association and JAMS are two of the larger ones that are routinely appointed in arbitration agreements. Arbitrators are private companies that usually hire retired judges to resolve disputes in a private setting as opposed to civil court.
2. Are Arbitration Agreements Enforceable in California?
Generally speaking, if the agreement is drafted and implemented properly, it is enforceable. However, arbitration agreements are routinely struck down by courts if they are not properly drafted. For example, recently a California court held in Ajamian v. CantorCO2e, that an arbitration agreement was not enforceable because it required the employee to waive statutory damages and remedies. In addition, the agreement in that case only allowed the employer to recover its attorney’s fees if successful, not the employee.
3. Why Would an Employer Implement an Arbitration Agreement?
There are a number of reasons. The arbitration process can proceed more quickly than civil litigation, saving a lot of time and attorney’s fees in the process. For example, often times the discovery process moves more quickly, and if there are any disputes, the parties can raise them with the arbitrator telephonically, instead of the lengthy motion process required to resolve disputes in civil court. The arbitration process is also confidential, so if there are private issues that must be litigated, these issues are not filed in the public records of the courts. The parties also have a say in deciding which arbitrator to use in deciding the case, whereas in civil court the parties are simply assigned a judge without any input into the decision. This is very helpful in employment cases, which often times involve more complex issues, and it is beneficial to the parties to select an arbitrator that has experience in resolving employment cases.
4. Are Class Action Waivers Enforceable In Arbitration Agreements?
Yes. The California Supreme Court ruled in Iskanian v. CLS Transportation Los Angeles, LLC that class action waivers can be enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion. However, Plaintiffs continually challenge class action waivers on numerous grounds, and it is critical employers’ agreements are properly drafted and up-to-date. In addition, while courts will uphold class action waivers, the California Supreme Court held that employee may still bring representative actions under the Private Attorneys General Act (PAGA). PAGA claims are limited to specific penalties under the law, and have a much shorter one year statute of limitations compared to potentially a four year statute of limitations for most class actions.
5. Based On the Holding in Iskanian, Should Every Employer Enter Into Arbitration Agreements With Its Employees?
No. The decision to implement an arbitration agreement should be reviewed with an employment lawyer to discuss the positives as well as the negatives of arbitration agreements. As discussed above, there are a lot of benefits of having an arbitration agreement in place, but it does not come without a few drawbacks. The primary drawback is that in California, the employer must pay all of the arbitrator’s fees in employment cases. Arbitration fees can easily be tens of thousands of dollars – a cost that employers do not need to pay in civil cases. In addition, while a class action waiver may be enforceable, employers still face substantial liability under PAGA representative actions, and a strategy in implementing a class action waiver should be thought through with the help of informed counsel.