California Supreme Court Approves Mandatory Arbitration

Author:Mr Stuart Miller
Profession:Davis Wright Tremaine

Many California employers have required newly hired and current employees to sign agreements obligating employees to arbitrate employment claims rather than file lawsuits. In Armendariz v. Foundation Health Psychcare Services, Inc., the California Supreme Court recently held that such agreements are enforceable if they satisfy certain conditions, most of which assure that the agreements not favor the employer to the employee's detriment.

First, the arbitration agreement must afford an employee the full range of statutory remedies, including punitive damages and attorneys' fees recoverable under the California Fair Employment and Housing Act (FEHA).

Second, the employer alone must "pay all types of costs that are unique to arbitration." This means that if the arbitrator charges an hourly or daily fee, it may not be split by the parties but must be paid exclusively by the employer. The Court noted that in litigation, employees do not have to pay for the services of a judge. The Court reasoned that requiring the employer to pay the arbitrator's fee "will ensure that employees bringing FEHA claims will not be deterred by costs greater than the usual costs incurred during litigation. Moreover, the above rule is fair, inasmuch as it places the cost of arbitration on the party that imposes it."

Third, employees are "entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrator(s) and subject to limited judicial review pursuant to" the Code of Civil Procedure. The Court did not precisely define what represents "sufficient" discovery, but stated that the arbitrator should balance the "desirable simplicity" of arbitration with the requirements of FEHA. Employers may want to specify in an arbitration clause the pre-hearing discovery that would be available for both sides.

Fourth, in order for judicial review of the arbitrator's decision "to be successfully accomplished, an arbitrator in a FEHA case must issue a written arbitration decision that will reveal, however briefly, the essential findings and conclusions on which the award is based." As such, the arbitration clause or agreement should require a written opinion by the arbitrator.

Fifth, the employer and the employee both must be obligated "to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences," such as all claims arising out of an...

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