Arbitration of employee claims-better safe than sorry

It has been my experience that employers facing an employee lawsuit, fare much better in arbitration rather than in the courts before a jury.  Oftentimes, Plaintiff;s counsel will enflame the jury by presenting irrelevant but damning facts that may not even have anything to do with the employees complaint.  Because of this, I recommend to al my clients that they include a mandatory arbitration provision in all their employment contracts and/or in their handbooks containing the company's rules and regulations (including the arbitration provision) and have the employee sign a document indicating he has read the handbook, is aware of its contents and agrees to abide by its provisions.

These types of mandatory arbitration provisions are usually enforced by the courts provided they afford the employee access to a forum for arbitration (meaning the employer agrees to pay all arbitration fees), and are specific in how the arbitration will be handled.

In a recent decision of the fourth appellate division, the Appellate Court invalidated the mandatory provision finding it to be procedurally and substantively unconscionable.  It is important to know that the offending portions of the arbitration provision the could found to be unenforceable in this case, can be corrected now so that the next employee complaint you receive gets arbitrated rather than tried before a jury.

In Carbajal v. CWPSC, Inc. (CA4/3 G050438 2/26/16) ,  Defendant and appellant CWPSC, Inc. (CW Painting) appealed the trial court’s order denying its motion to compel its former employee, plaintiff and respondent Martha Carbajal, to arbitrate her wage and hour claims under the arbitration provision in her employment agreement.  The trial court denied the motion because it found the arbitration provision was both procedurally and substantively unconscionable.  The Appellate Court agreed with the trial court.

 The arbitration provision was found to be procedurally unconscionable because it was a part of an adhesion contract CW Painting imposed on Carbajal as a term of her employment.  Further, although the arbitration provision required the parties to arbitrate their disputes under the American Arbitration Association’s (AAA) rules, the provision did not identify which of AAA’s many different rules would apply, CW Painting failed to provide Carbajal with a copy of the rules it believed applied, and CW Painting required Carbajal to sign the agreement without telling her where she could find the governing rules or giving her an opportunity to determine which rules would apply. 

The arbitration provision was found also to be substantively unconscionable because it allowed CW Painting to obtain injunctive relief in court while requiring Carbajal to seek relief through arbitration, it waived the statutory requirement that CW Painting post a bond or undertaking to obtain injunctive relief, and it effectively waived Carbajal’s statutory right to recover her attorney fees if she prevails on her Labor Code claims.

CW Painting’s asserted that the trial court was required to sever these unconscionable terms and enforce the remainder of the arbitration provision.  The Court of Appeal found that a trial court has discretion to deny enforcement of an arbitration agreement when the existence of multiple unconscionable terms permeates the entire agreement.  The Court found the facts supported the trial court’s exercise of its discretion.

 Finally, the Court rejected CW Painting’s contention that the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) governed the action.  The trial court and the court of appeal found otherwise.  Both courts found that the party asserting the FAA controlled bore the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce, and CW Painting failed to timely present such evidence.

The moral of this story is that mandatory arbitration of employee claims can be enforced provided the provision relied upon contained all the necessary safeguard.  If you have not had an attorney review the wording of your arbitration provision recently, you should do so.  An inflamed jury is very likely to side with the employee and assess not only damages but also punitive damages as well.  It is much better to be safe rather than sorry.