Are Arbitration Agreements Enforceable?

ArbitrationWhen you were hired by your current employer, were you required to sign an arbitration agreement? The agreement stated you would use an arbitrator to deal with any workplace-related legal claims, rather than going through the courts. At the time, it seemed a minor issue—just another piece of paper you signed in order to get the job you wanted. Now, you may find yourself regretting that signature. Perhaps a group of employees has asked you to join in a class action lawsuit against your employer, fighting for employee rights. You believe in the cause—but there is the matter of that pesky arbitration agreement you signed. What now? An experienced employment lawyer can help you to understand both your rights and your responsibilities in this situation.

The Arbitration Process

Pursuing a remedy to workplace issues through an arbitration process has benefits, to be sure.  For instance, the proceedings are often much speedier. Disputes among parties can be raised over the phone with an arbitrator, instead of through the motions required in the court system. Besides saving time, arbitration can save everyone a lot of money. Employees, in particular, save money because employers are required to pay all arbitration fees in California. Arbitration is also a more private venue than the court, and no public records will be filed.

Federal Ruling

The 9th Circuit court recently issued an opinion striking down mandatory class waivers (Morris v. Ernst & Young). In this case, the plaintiff had signed an arbitration agreement spelling out that “covered disputes pertaining to different employees will be heard in separate proceedings.”  Nonetheless, the plaintiff claimed that he and others had been wrongfully labeled as exempt from overtime pay, and filed a class and collective action against his accounting firm, Ernst & Young.  The court found that agreements that take the rights of the worker to obtain federal relief from a work-related claim are untenable, and ruled for the plaintiff.

Arbitration Agreement Uncertainty in California Law

On the other hand, the California Supreme Court has upheld arbitration agreements that include class action waivers (Iskanian  v. CLS Transportation Los Angeles, LLC.).

This leaves us with some ambiguity regarding the enforceability of arbitration agreements that include class action waivers. The federal court clearly states that employees do have a right to band together to pursue work-related claims. The state court differs. So, is an arbitration agreement enforceable in the state of California?

In general, a well-drafted agreement that is implemented fairly and appropriately should be enforceable. What makes an agreement unenforceable? The courts have found certain factors to be non-starters such as:

  • Agreements that require employees to waive statutory damages;
  • Agreements that require employees to waive statutory remedies;
  • Agreements that do not allow the employee to recover attorney’s fees if successful;
  • Agreements that contain class action waivers, precluding employees’ rights to band together to ensure their rights are preserved and protected.

[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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