Mandatory Arbitration Mostly Prohibited in California

Mandatory Arbitration Mostly Prohibited in CaliforniaCalifornia law on mandatory arbitration is about to change. Will the new law be better or worse for employees and businesses? Do you have a bone to pick with your employer? If employment policies or practices are illegal and unfair, you may wish to pursue legal action against your employer.  Starting in January 2020, that right will be afforded to you, thanks to a new bill that was just signed into law here in California. 

AB 51

Governor Newsom signed AB 51 into law, prohibiting employers from requiring employees to waive their right to sue when it comes to allegations of impropriety in the workplace. This could include anything from discriminatory behavior, labor violations, sexual harassment, retaliation, and any other offenses that may be illegal. While up until now many businesses compelled employees to agree to private arbitration in lieu of a lawsuit, the new legislation eliminates forced arbitration altogether.

Understanding  Mandatory Arbitration Agreements

Arbitration agreements are designed to handle workplace disputes without involving the courts.  Employers generally favor them for a number of reasons:

  • Arbitration is faster than a courtroom proceeding;
  • Arbitration is generally less expensive than lawyer fees and court costs;
  • Claims against employers never make it to a jury, avoiding massive payouts from employers.

For employees, however, mandatory arbitration can be a huge disadvantage when they have a solid case of wrongdoing.  Juries are often quite supportive when it comes to the mistreatment of workers, and have been known to award hefty damages. Even the threat of a jury trial can result in higher offers from companies who wish to avoid a courtroom battle.

Is Arbitration Fair?

In some cases, arbitrators, who are themselves employed by arbitration firms, tend to have a certain amount of bias toward employers who regularly utilize them. Researchers call this the repeat player effect, and report that workers are 500% less likely to prevail against an employer who had previously used a particular arbiter. In situations when workers did win, they were paid significantly less in settlements.

A Tricky New Law

What makes the whole thing somewhat controversial is the fact that the Supreme Court has previously determined that mandatory arbitration agreements are, indeed, legal. In California, it means that, while these agreements may be offered, and may be enforced if signed, employees now have a choice when it comes to signing such an agreement.  Employers may not retaliate against anyone who refuses to sign this document, and may not revoke any job offers in the event a would-be employee chooses not to sign on to such an agreement. [Read more…]

Forever 21 Arbitration Agreement Upheld by California Supreme Court

Arbitration AgreementCalifornia Supreme Court clarifies what counts as an “unconscionable” Arbitration Agreement. When Maribel Baltazar took a job with the clothing retailer Forever 21, she signed an employment application that contained an arbitration agreement. The agreement stated that any employment-related disputes she might become involved in would be resolved via arbitration. It also included specific examples of disputes that would be subject to arbitration, such as wage claims, breach of contract claims, and discrimination claims.

In 2011, Baltazar quit her job, and filed a claim against Forever 21 in superior court, alleging discrimination based on sex and race, verbal and physical harassment, and retaliation. Forever 21 moved to compel arbitration, as specified by the arbitration agreement. Baltazar argued that the arbitration agreement was unconscionable, and thus could not be enforced.

The case made its way to the California Supreme Court, and on March 28, 2016, the Court ruled in favor of Forever 21. The decision,  Maribel Baltazar v. Forever 21 Inc. et al., sets important precedents regarding when an arbitration agreement should be considered unconscionable.

The Court’s Arbitration Agreement Reasoning

Baltazar initially won at trial. The trial court ruled that the arbitration agreement in the contract was an unconscionable contract of adhesion, being as it was written on a preprinted form and offered on a take-it-or-leave-it basis. However, both an appeals court and the California Supreme Court disagreed on the issue of unconscionability. The Supreme Court pointed out that while it was a contract of adhesion, it was not unconscionable because there was no element of surprise involved in the agreement, and that Baltazar was not lied to, place under duress, or manipulated into signing it.

One of Baltazar’s arguments was that the arbitration agreement should be considered invalid because it allowed the parties to seek temporary restraining orders or preliminary injunctions. She claimed that this clause was unfair because her employer was more likely than an employee to seek a restraining order or a preliminary injunction. The Supreme Court held that the clause did not confer an advantage on either party because it simply confirmed rights that the parties hold under California law.

Another argument Baltazar made in favor of the agreement being unconscionable was that it listed examples of what kinds of claims are subject to arbitration, and the only examples cited were employee claims. The Supreme Court held that it is acceptable for an employer to list only these types of claims as examples, so long as the wording of the contract makes it clear that all employment-related claims are subject to arbitration. The Court pointed out that the arbitration agreement stated that the claims subject to arbitration “include but are not limited to” the examples given. [Read more…]


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