California Arbitration in Employment Disputes: Don't Believe The Hype!

What is Arbitration?

Arbitration is where parties to a dispute agree to resolve it outside of court. The parties hire a third person, usually a retired judge, and their agreement determines the rules of how the arbitrator makes his or her decision. There is no jury and, usually, no appeals. Even if the arbitrator makes a mistake, the parties usually have to accept the arbitrator's decision. Thereafter, a court will enforce the arbitrator's judgment the same way it enforces its own judgments. Employers require arbitration as a mandatory term of employment. In those cases, if an employee has a case for sexual harassment or racial discrimination, the arbitrator hears the facts and issues an award.

Much effort has been put into convincing the public that arbitration is a great way to resolve any dispute, including employment disputes.  Arbitration advocates say that arbitration is quicker and less expensive for everyone.  If this is so, then why not prefer arbitration? 

These arguments are concocted to favor business.  Would you still prefer arbitration if the rules of conducting the arbitration favored the employer?  How would you feel if the arbitrators likely would favor the employer when awarding damages, and would award less on claim than a jury?  Those arbitrations are not free by the way, and the arbitrators (at least where I practice in Los Angeles) charge in the neighborhood of $450 per hour.  You may be required to pay half or all of the arbitrator's fee, which probably will be thousands of dollars.

Arbitration is Big Business

Arbitration is big business.  For example, the American Arbitration Association reports that its revenues were almost $84 million a year in 2002.  Like any business, it will favor its repeat customers, namely, other big businesses.  (Who do you think conducts more arbitrations, you or General Motors?).  In fact, the California Supreme Court acknowledges the pro-defense and pro-business bias of arbitration.  "The perceived advantages of the judicial forum for plaintiffs include[s] . . . the fact that courts and juries are viewed as more likely to adhere to the law and less likely than arbitrators to split the difference‚ between the two sides, thereby lowering damages awards for plaintiffs." ‚Armendariz   v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83.  That is a nice way of saying, "people know that arbitrators don't always stick to the law and award less."  If you don't believe me, I can't wait for your first arbitration result.

I have seen many arbitration agreements in my practice, and I am always surprised at how low employers will go to skew the process of arbitration in their favor.  For example, Circuit City's arbitration agreement requires their employees to pay a fee to Circuit City before beginning an arbitration.  No Court in the United States requires that a party pay a fee to another party just to get into court.  Many arbitration agreements shorten the statutes of limitations or require that their employees bring their disputes to a panel of employees first for resolution, thereby subjecting the employee to the company attorneys before the employee gets legal representation.  Others limit how much fact finding (discovery) the employee can do prior to the arbitration.  This favors employers tremendously, because their lawyers and not the lone arbitration claimant will have access to many employees and documents.  These clauses are designed to skew the conflict in the employer's favor.

Arbitration in California

Unfortunately, in California, an employer can require its employees to agree to arbitration as a term of employment.  There are some protections.  If an agreement has too many unfair or one sided terms, California courts may refuse to enforce the arbitration agreement or sever the unfair terms. 

Do not ignore these agreements if you have a dispute with your employer.  Many people think that these agreements can be ignored or that it is some paperwork to cover a legal formality.  In California, if you ignore the arbitration agreement, at some point a court may find you in breach of the arbitration agreement.  In that case, you will not be able to proceed with an arbitration or in court, and you will not be able to get any remedy for your dispute no matter how good your case is.

Arbitration is a very tricky area because the law is still developing.  You should consult a knowledgeable attorney before to trying to resolve any dispute where you have an arbitration agreement.