The U.S Supreme Court recently ruled that the Federal Arbitration Act (FAA) supersedes state laws and requires the parties to arbitrate an employment dispute irrespective of a California state administrative procedure.

The case arose out of a dispute between Arnold Preston, an entertainment lawyer, and Alex Ferrer a former Florida state court judge.  Ferrer was contracted to perform acting services as television’s “Judge Alex”.  Ferrer and Preston entered into a contract for Preston to provide “personal management services” in exchange for a percentage of Ferrer’s earnings on the television series.  The contract between the two parties called for arbitration as the exclusive means of dispute resolution.

A dispute arose between the parties in 2005 over fees due Preston for his services.  Preston demanded arbitration under the contract.  In opposition, Ferrer petitioned the California Labor Commissioner to initiate its administrative procedure to decide the dispute.  Further, Ferrer petitioned a California state court to prevent Preston from proceeding with his arbitration demand.  The basis for the counter argument was Ferrer’s assertion that Preston had failed to register with the state of California as a “talent agent”.  Initially, a California state court granted Ferrer’s request to stay the arbitration. Preston appealed, and the state appellate court affirmed the lower court ruling.  Preston appealed to the State Supreme Court, which declined to review the case.  On the theory that the contract was made in accordance with the Federal Arbitration Act, Preston appealed to the U.S. Supreme Court and the Court agreed to hear the case, ruling in Preston’s favor and agreeing that the Federal Arbitration Act superseded state law or administrative procedure.

Significance
Readers of the Bulletin will recall that arbitration has been under attack, particularly in California for some time.  To further complicate matters, various states have legislated stringent requirements which must be followed in order for arbitration agreements to be valid on a state level.  Now that the U.S. Supreme Court has ruled on the matter, it is recommended to make reference to the FAA in every arbitration agreement.

We strongly advocate in favor of arbitration because the process is usually faster, cheaper, requires less complex discovery and legal motions (in most cases) and, most importantly, is frequently viewed by plaintiffs’ attorneys as a less lucrative proposition than a jury trial.  This view, in our experience, results in a greater likelihood of an early settlement.

If you do not have arbitration as the exclusive means of dispute resolution, we strongly suggest you consider implementing such a change. Contact us if you are interested in assistance tuning your arbitration agreement or determining the best methodology for implementing arbitration in your organization. 

For our technology clients, we are compliant in 25 states and our Arbitration Agreements are currently under review.  Updated agreements will be available on SharedHR during the first week of May 2008.