California Court Establishes New Arbitration Agreement Requirements
The California Court of Appeal recently upheld an order denying an employer’s motion to compel arbitration, although the company had arbitration provisions contained in its employment application, employment agreement, and employee handbook. The Court’s opinion further clarified the responsibilities of California employers, with respect to the information that must be contained in arbitration agreements, to make them enforceable.
Stephen Mayers filed a lawsuit against his former employer, alleging several discrimination claims under the California Fair Employment Housing Act. Volt Management Corporation moved to compel arbitration, based on an agreement to submit employment-related claims to arbitration. Volt Management Corp included arbitration provisions in its employment application, employment agreement, and employee handbook. The provisions required employees to submit any employment-related claims to arbitration pursuant to the applicable rules of the American Arbitration Association in the state where the plaintiff was employed. The plaintiff was not provided with a copy of the controlling AAA rules or advised as to how he could find or review them. The Court found that these provisions “suffer from a high degree of procedural unconscionability” because they “constituted contracts of adhesion, were offered to plaintiff on a take-it-or-leave-it basis, and, most importantly, required plaintiff to submit claims to final and binding arbitration pursuant to an unspecified set of rules promulgated by the AAA.”
The arbitration provisions in Mayers also contained a provision stating that the “arbitrator shall be entitled to award reasonable attorney’s fees and costs to the prevailing party.” The Court found that these provisions contained a high degree of substantive unconscionability because they would require Mayers to a greater risk than he would have if he pursued his claims in court.
Volt did not dispute that the arbitration agreement was a mandatory condition of employment. It did maintain that Mayers could have received a copy of the applicable American Arbitration Association rules if he had requested them, and he had one week to consider the employment agreement before signing it.
Based on the Mayers decision, California employers must certify that their arbitration provisions clearly set forth which arbitration rules will apply, and attach a copy of the applicable rules or set forth where the employee may find the rules. Employers should also make sure that their arbitration provisions do not contain an unlawful prevailing party attorney’s fees clause. For help constructing an Arbitration Agreement, please contact SharedHR.