ARBITRATION OF EMPLOYMENT CASES
Reviewed by Patricia Pelz Hart, Lawyer / Librarian, Chapman University School of Law
The history and current state of employment arbitration was the subject of Arbitration of Employment Cases, a program at the 37th SCALL Institute, March 27-28, 2009. The speaker was Louise A. LaMothe, an attorney who is now a professional neutral mediator and arbitrator. The overall theme of the Institute was Near and Far with ADR: Exploring the Many Facets of Alternative Dispute Resolution. The Institute took place at the Embassy Suites La Quinta.
The term labor arbitration should not be considered a synonym for the term employment arbitration. They have commonalities. Labor arbitration served as the springboard for employment arbitration. But the employment arbitration of today is very different from the labor arbitration of many decades ago.
Labor arbitration was traditionally a means of resolving disputes in collective bargaining agreements. The parties, employers and unions, each had a measure of bargaining power. The disputing parties entered into an arbitration agreement. Arbitration was a relatively informal process that involved much direct contact between all sides.
Today, arbitration is frequently mandated by the employer rather than chosen by the employee. Employees now are often at will and not members of any union. New employees sign a pre-written contract that already contains an arbitration clause. This pre-dispute arbitration clause typically favors the employer. During arbitration, each side may be in a separate room and talk to each other primarily through a third party.
The number of employment cases going to arbitration has increased markedly in the last several years. Business defendant attorneys prefer arbitration to time-consuming and expensive court proceedings. Also, in arbitration, the decision makers are often judges or professional arbitrators. As repeat players, the arbitrators may be more receptive to business arguments and less easily swayed by emotions than are juries. Employee plaintiff attorneys prefer courts and juries.
The employer may be tempted to overreach when drafting the arbitration clause in today’s standard employment contract. The clause may mandate that arbitration shall take place in only one state. Employees, however, may reside in other, distant states. Employees are likely to incur expenses and various difficulties when engaging in arbitration in the named state. When the arbitration clause is imposed on the employee and goes too far in favoring the employer, the courts may view it as a contract of adhesion and provide remedies. The court may cut out the offending language from the arbitration clause, or it may not enforce the clause at all.
Leading Cases
An important case in employment arbitration is Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83, 99 Cal. Rptr. 2d 745, 6 P.3d 669 (2000). The arbitration agreement required the employee to arbitrate wrongful termination or employment discrimination claims, but let the employer choose arbitration or litigation if it had a claim. The applicable statute was the California Fair Employment and Housing Act (FEHA), Gov. Code § 12900 et seq. After plaintiff employees sued, defendant employer moved for arbitration.
In the past, experienced people had served as arbitrators for free or low fees. There was no initial preparation and hearings were short. By the time of Armendariz, arbitrators were paid hefty sums and other costs had increased. The subject arbitration clause required defendants to arbitrate and then said they must pay part of the arbitrator fees and forum costs. In addition, the clause limited damages to lost wages. The court found for the employees. The arbitration agreement was held to be an adhesion contract. Statutory rights that FEHA granted, such as punitive damages and attorney fees, could not be waived. The agreement also failed because it was unconscionably unilateral. The courts stated unconscionability could be procedural or substantive.
Armendariz set the minimum standards of a valid arbitration clause, to wit: the arbitrator must be neutral; arbitrator must issue a written decision that reveals the award’s essential findings and conclusions; awards must provide all types of relief that would be otherwise available in court; employer must foot the costs; and there must be at least some discovery.
The subsequent case of Ontiveros v. DHL Express (USA), Inc., 164 Cal. App. 4th 494, 79 Cal. Rptr. 3d 471 (1st Dist. 2008) set forth a laundry list of ways in which an adhesion provision may be unconscionable. Courts want arbitration clauses to mean there is only a change in forum, not a change in results.
Getting to Arbitration
A matter gets to arbitration by one of three methods. The employment handbook may mandate it. An ongoing court case may be submitted to arbitration to get it out of the clogged court system. A party makes a motion to compel to enforce the contract to arbitrate.
Finding the Arbitrator
An arbitrator may be supplied by provider organizations or be a retired judge associated with an organization such as JAMS [Judicial Arbitration and Mediation Services.] The internet is a resource. A website of distinguished California neutral arbitrators is www.californianeutrals.org. Some arbitrators have their own websites. Many plaintiff lawyers share information about arbitrators on listservs. LEXIS has a useful database of employment awards.
A question of favoritism can arise if the arbitrator is working for the provider organization. Arbitrators who are freelancers may be more likely perceived to be neutral.
Unique Aspects
Traditionally, arbitration is informal. There is no record unless the parties agree to one and pay for it. Arbitration is a private process. Information is not readily available. The rules of evidence are largely inapplicable. Rules specific to arbitration exist. There is no judicial review of arbitration awards.
Class Actions
Wage and hour matters may involve small awards but a large number of cases. Class actions are the latest development in employment arbitration. A recent case is Green Tree Financial Corp., nka Conseco Finance Corp. v. Bazzle et al., 539 U.S. 444, 156 L. Ed. 2d 414, 123 S. Ct. 2402 (2003).
California takes a liberal view. If the arbitration clause is silent on class actions, California courts say such actions are allowed. If the clause forbids class actions, California courts look to see if the clause amounts to a contract of adhesion. If it is one, a class action is permitted.
Once a clause is construed as allowing a class action, the class must still be properly certified. Most cases settle once the class is certified.
Current Congress
The Arbitration Fairness Act of 2009 and the Consumer Fairness Act of 2009 are bills in the current Congress. If passed, they will have significant impacts on employment arbitration.
Final Thoughts
Arbitration is prized for its flexibility, speed, and informality. Awards are not very large, compared to jury verdicts. The labor union template for employment arbitration has been revised as it applies to current labor market and employment contracts. Employment arbitration is looking more and more like employment litigation as courts try to safeguard employee rights.
Patricia Pelz Hart is Reference Lawyer/Librarian at Chapman University Law School Library, Orange, California.
