Articles Posted in Arbitration

I know I’ve said this before, but if employers so relish their precious right to force employees to arbitrate all their claims, why can’t they get it right and draft a simple arbitration agreement so that it is enforceable? Mayers v. Volt Management Corp.,__ C.A.4th___ (Feb. 2, 2012) is another example of an employer getting it wrong. For reasons any reasonable employer could have predicted, the California Court of Appeals struck down Volt’s mandatory arbitration agreement.

Here Volt started out by providing its arbitration agreement to Mr. Mayers on a take-it-or-leave-it basis. Second, Volt failed to shed light upon the arbitration rules it required Mr. Mayers to follow should any case wind up in arbitration. Instead, it simply told Mr. Mayers that any arbitration would be governed by “the applicable rules of the AAA [American Arbitration Association]”. Volt neither provided a copy of these rules to Mayers, nor did it tell him how or where to obtain such a copy himself. The court characterized these errors are procedurally unconscionable.

To top it off, Volt’s arbitration agreement mandated that the arbitrator may award costs and attorney’s fees to the prevailing party. If Volt had a lawyer, Volt would have known that this was an absolute no-no. The Fair Employment & Housing Act (FEHA) prohibits a court from awarding fees to an employer (for claims governed under the act such as covered employment discrimination or retaliation claims) unless the claims were frivolous, unreasonable and without foundation. Here Volt changed this standard of the law to favor the employer.

Ms. Zullo worked for a newspaper publisher, Inland Valley Publishing Company. The employer’s handbook contained a policy requiring mandatory arbitration of employment disputes. The handbook stated that any arbitration would be governed by the American Arbitration Association rules, but failed to set forth those rules in detail. The handbook did require that an employee who filed an arbitration demand meet strict timelines, altered the law by shortening potential statute of limitations, and required that an employee respond to an arbitrator’s communication within ten business days. The remedy for an employee’s violation of these rules was the dismissal of his or her claims. In order to work for Inland, an employee was required to sign and acknowledge this handbook.

After Ms. Zullo was fired, she filed a lawsuit in court. Inland sought an order to send her case to arbitration. The trial court ordered that the case be sent to arbitration. However, the Court of Appeals reversed, holding that the arbitration agreement was unconscionable. Zullo v. Superior Court, 197 Cal. App. 4th 477 (2011).

It is getting rather tiresome reading all the ways in which employers heavy handedly force employees to “agree” to arbitrate their claims, as well as all the ways in which the employers attempt to manipulate the arbitration process to favor the employer. Even though courts generally keep overturning such overreaching agreements, employers keep promulgating them. The reason is because most employees don’t always have the resources and where-with-all to hold the employer to the letter of the law.

Despite the prevalence and overreaching of arbitration agreements in employment cases, traditionally in state and federal court, interpreting both the Federal and California Arbitration Acts (FAA and CAA, respectively), employees have at least been permitted to seek a Court’s determination about whether or not the arbitration agreement the employee signed is enforceable. In other words, despite the fact that an employee signed an arbitration agreement, the employee still generally had been able to ask a court to rule on important enforceability issues such as the existence of the agreement and whether an agreement is so unconscionable as to be unenforceable.

Then came the US Supreme Court in Rent-A-Center, West, Inc. v Jackson, 130 S. Ct. 2772 (2010) and poked a rather major hole in this important safeguard.

Rent-A-Center, interpreting the FAA, held that – where the arbitration agreement itself took this important safeguard away from the courts and assigned it to the arbitrator – the arbitrator holds all the power to rule on whether or not the arbitrator gets to hear the case (i.e., the existence and enforceability of the agreement).

It is another win for the employee in the ongoing battle to make mandatory employment arbitrations more equitable to the employee. Since the concept of mandatory arbitration agreements has been so overwhelmingly endorsed by the courts, some courts have still felt compelled to keep striking down a host of scurrilous provisions employers keep tacking onto their mandatory arbitration agreements. After a while, we must simply ask, again: should employer really be permitted to make arbitration agreements mandatory when there is all this abuse of the process going on?

In Trivedi v Curexo Technology Corp. (Cal. Court of Appeals, October 2010), the court looked first at whether the agreement was “procedurally unconscionable” (i.e. whether the manner in which the employer obtained the agreement was so unfair that it was illegal). Curexo presented Mr. Trivedo with the arbitration agreement in a take-it-or-leave-it manner, requiring that he arbitrate all claims that may arise in the future, using American Arbitration Association (“AAA”) rules without providing him with a copy of the rules. The court found the failure to provide the rules made the procedure procedurally unconscionable.

Next the court looked at whether the agreement was “substantively unconscionable” (i.e. whether the actual terms of the agreement were so unfair that it made the agreement illegal). Curexo’s agreement contained two terms that the courts had already frowned upon, so it was little surprise that the court found the terms unconscionable. The first was changing the law to make it easier for the company to collect attorneys’ fees against the employee, should the employee lose his claim. The second was allowing a party to by pass the so-called mandatory arbitration process for claims generally brought by employers, thus making the arbitration mandatory for employees but not for the employer.

On August 2, 2010 the California Supreme Court saw no problem with the fact that a disgraced and discredited retired judge – who was publicly censured for creating “an overall courtroom environment where discussion of sex and improper ethnic and racial comments were customary” – served as an arbitrator in a medical malpractice case brought by a female patient, without even disclosing the censure to the parties. The Court, in an opinion for which it should be deeply embarrassed, basically held that a retired judge’s clearly sexist and harassing conduct towards female staff does not in any way establish that the judge holds any bias against female litigants enough to even disclose the fact. In reality, the Court simply felt that the finality of arbitration awards was more important than fairness to the female plaintiff. Haworth v. Superior Court (Ossakow) S165906.

On October 12, 2010, the California Court of Appeals did what it could to limit the impact of this holding and raised some very good issues while doing so. Addressing a different set of facts involving potential arbitrator bias, it ruled the other way, distinguishing the facts from Haworth. In Benjamin, Weills & Mazer v. Kors, A125732, the arbitrator failed to disclose that he regularly represented law firms in fee disputes, in a case involving just such a fee dispute, i.e. he did not disclose that he normally and currently represents one side in the very type of case before him. The Court of Appeals held that the arbitrator should have disclosed this. The court held that this business relationship “could reasonably cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.”

The Court went on to approve of a broader disclosure for an arbitrator than what is required for a judge, and to analyze the different circumstances and interests of arbitrators and judges. Explaining that since arbitrators have their own business interests, and that private arbitration as a whole “is a commercial enterprise”, the situation is different than the judicial system. (Indeed, there are other reasons to provide a higher level of scrutiny to arbitrator bias than judicial bias. For example, an arbitrator is the gatekeeper and fact finder, judge and jury, whereas in a court preceding the litigants normally have the right to a jury to act as the ultimate fact finder instead of the judge).