New Employee Arbitration Decision Carries Lesson For Employers

New Employee Arbitration Decision Carries Lesson For Employers

The recent decision of the California Court of Appeal in Carbajal v. CWPSC_ Inc. (4th Dist. Feb. 26, 2016) G050438 has several lessons for the employer in terms of drafting and enforcing employee arbitration agreements.  The defendant was a house painting service that hired college students to sell the service and manage it.  The arbitration agreement new employees were required to sign specified that arbitration was subject to AAA Rules, but failed to specify which set of rules (the AAA has many different rule sets).  The arbitration agreement was also uneven in the relief it provided to the employer and employee in the following respects: (1) injunctive relief was available to the employer only; (2) the bond requirement for injunctive relief was waived; (3) the right to attorneys’ fees under the Labor Code was waived; and (4) the employer reserved its right to appeal any ruling by the arbitrator that contravened the class action waiver also contained in the arbitration agreement.  The court ruled that the arbitration agreement was procedurally unconscionable for failing to specify the AAA Rules that would apply to the arbitration and substantively unconscionable for providing certain forms of relief to the employer only and waiving attorneys’ fees.  The court affirmed the trial court’s denial of the employer’s motion to compel arbitration.

In a final blow, the court also rejected the employer’s argument that the Federal Arbitration Act (the “FAA”) applied.  Application of the FAA would have preempted California law which is far friendlier to employees in terms of enforcing arbitration clauses.  In so ruling, the court noted that the arbitration agreement itself did not select the FAA.  As a result, the employer was required to introduce evidence that the contract affected interstate commerce.  Having failed to do so, the court declined to apply FAA preemption.

Mandatory employee arbitration agreements are not necessarily appropriate for every employer.  Once an employer decides to implement a mandatory employee arbitration agreement, however, the agreement must be drafted in a manner that ensures enforceability.  Be clear about what arbitration rules apply and when in doubt provide an Internet link or copies of the rules themselves.  Make sure the arbitration agreement provides the same remedies to employer and employee.  An agreement that favors the employer is less likely to be enforced.  Finally, federal law is generally more favorable to the employer than state law in terms of enforcing arbitration agreements.  As such, specify that the FAA applies to the enforcement of the agreement to arbitrate.

Fernald Law Group is a trial litigation boutique with offices in Los Angeles and Las Vegas.  In addition to litigating labor and employment disputes, Fernald Law Group attorneys routinely consult on human resources matters for employers and are often called upon to audit existing arbitration agreements and employee handbooks in order to ensure compliance with California and Federal law.