Explaining Arbitration Of Employment Disputes In California

A Los Angeles Employment Attorney Explains


Employment law suits often turn out to be protracted and expensive and many a times, after all the legal acrobatics, the verdict may put both the parties dissatisfied. Hence, parties may agree upon arbitration as a means of dispute redressal for early and economical resolution of employment disputes. Arbitration is where parties to a dispute agree to resolve it outside of court by hiring a third person, and agree upon how the arbitrator makes the decision. Thereafter, a court will enforce the arbitrator’s judgment the same way it enforces its own judgments. There is no jury and, normally, the arbitrator’s decision is final and hence no appeals. Even if the arbitrator makes a mistake, the parties usually have to accept the arbitrator’s decision. However, in exceptional situations appeals are allowed from the decisions of an arbitrator. At times, employers require arbitration as a mandatory term of employment.

Essential Pre-Requisites

Under California law, an employer can require its employees to agree to arbitration as a term of employment. However, if the agreement has too many unfair or biased conditions, courts may refuse to enforce the arbitration agreement or chop off the unfair terms. In order to prevent the arbitration agreement from becoming arbitrary, certain fairness etiquettes are to be observed while drafting. In the landmark decisions in Armendariz and Auto Stiegler, the California Supreme Court have laid down certain threshold requirements to be borne in mind while drafting arbitration agreements.

The basic pre-requisites include: “1) a procedure to select a neutral arbitrator, 2) the right to conduct adequate discovery, 3) a requirement that the arbitrator issue a written opinion setting forth some reasoned basis for his decision, 4) a mutuality of obligation, i.e. the employer as well as the employee is required to use the arbitration procedure for their claims, 5) the right of the arbitrator to issue any award which a court could issue, 6) no limitation on the statute of limitations provided by law, 7) a procedure that will cost the employee no more than a lawsuit in the Superior Court, and, 8) if an appeal procedure is provided in the agreement, it must be fair and equally available, without limitation as to the size of the award necessary for an appeal, to both the employee and the company”. Armendariz arose under the California Arbitration Act (CAA), and the underlying claim involved the state anti-discrimination statute. Moreover, the agreement should not impose on the employee any costs unique to the arbitration. The agreement should contain provisions to ensure fairness and neutrality. Reference to the rules of a recognized arbitration tribunal, such as the American Arbitration Association, is one of the easiest ways to accomplish this goal.

Most of the times, while signing an arbitration agreement, the employer takes the driver’s seat asking employees to sign arbitration agreements, and are expelling those who do not. The employee has no other option except to sign or looks for another job. Interestingly, such agreements are called ‘adhesion contract’ as the employee have to adhere. This obviously raises the pertinent question whether such an agreement is enforceable and additionally, if the employee declines to sign and if discharged what recourse he or she will have? If the arbitration clause is extremely one sided and unfair, such agreements are unenforceable.
California courts are of the opinion that an arbitration agreement is not rendered unenforceable merely because it is an adhesion contract. In Lagatree v. Luce, Forward, Hamilton & Scripps, 74 Cal.App.4th 1105 (Cal. App. 1999), for instance, where a legal secretary who was dismissed for not signing the arbitration agreement sued the employer for wrongful discharge and violation of public policy, the court held that in order to succeed in a claim of violation of public policy in California, an employee must show that the employer has interfered with some policy of the public. The court said that since Lagatree had a right to a jury trial and a right to a judicial forum, which were subject to being bargained away and waived, they were not rooted in public policy and hence, the discharge was not wrongful under California law.

The Flip Side Of Arbitration

The main allegation against arbitration is that it can result in one-sided decisions that cannot be reviewed by a court. Some commentators believe that arbitration programs can place the employer in a disadvantageous position because of the relative lack of expense and faster resolution, they can encourage employees to bring marginal claims. And there is the counter argument that the employers often try to skew the arbitration results in their favor. At times they try to overreach by twisting the terms and stipulations in their favor. Arbitrators are said to be not paying strict adherence to the law and at times compromise on the legal niceties which costs the employees dearly. In California, an employer can require its employees to agree to arbitration as a term of employment. However, if an agreement has too many unfair or biased terms, California courts may refuse to enforce the arbitration agreement or chop off the unfair terms.

Right To Appeal

Though basically arbitration agreements are non-appealable, some arbitration clauses may have a safety valve by providing for clauses for appeal. Under California law, an arbitration award can be vacated when the award is procured by corruption, fraud, undue means, or the arbitrators “exceeded their powers”. As mentioned above the there is very limited right for any further review of the arbitration decision. Hence, some arbitration clauses have been drafted to explicitly provide that the court or another arbitrator has the right to review an arbitration award with respect to the merits and the applicable law. In Finley v Saturn of Roseville (April 23, 2004, No. C043997), the court held that “once a matter is ordered to arbitration pursuant to an arbitration agreement, the procedure in the agreement governs the proceedings, including determining whether a party has waived its right to review by a second arbitrator”. The case also reiterates “that an enforceable private appellate review procedure can be properly inserted in an arbitration agreement and it will be enforceable, so long as it provides equal appeal rights for both the company and the employee”.


Arbitration is an effective, quick, and inexpensive method of dispute resolution. The employment litigation landscape has changed considerably and more employee-friendly laws are in place both at the federal and state level. A plethora of social security legislations providing for benefits like family and medical leave, equal pay, and redressal for unlawful termination, at-will employment and discrimination have been enacted in the past decades. This, as some commentators point out, has resulted in a flurry of cases filed by the employees on frivolous and marginal claims. Despite this alleged misuse, arbitration proves to be a potent method of dispute redressal in the field of labor and employment laws.

To learn more about arbitration and other employment law services, contact our Los Angeles employment lawyers today.