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How to ensure arbitration of employment disputes

On Behalf of | Apr 29, 2021 | Employment Litigation |

For even the most well-run enterprises, the law of averages dictates that a dispute with a worker will eventually arise and lead to litigation. It simply comes with the territory. 

Forward thinkers in the C-suite who anticipate these inevitable dust-ups often include arbitration clauses in their employment agreements. Among other potential advantages, arbitration limits the risk of negative publicity by keeping employment matters out of the public spotlight. 

The arbitration clause in an employment agreement covers the range of potential disputes that might crop up from time to time. Two cases recently issued by appeals courts in California illustrate the necessity of ensuring that arbitration clauses in employment-related agreements cast a wide net. 

Focus on a clear waiver

In their everyday operations, California businesses rely on and benefit from two fundamental legal principles:

  • The freedom to contract; and
  • The right to go to court, and to appeal to a higher court when necessary, to resolve disputes and right wrongs. 

Agreements to arbitrate have the potential to put those two ideas in conflict. On one hand, parties should be able to agree to arbitrate their disputes. On the other hand, agreeing to arbitrate means sacrificing a fundamental and jealously-guarded right: access to trial-by-jury and the ability to appeal an unfavorable decision. 

Courts and legislatures put these principles in balance by requiring that any agreement to arbitrate reflect a clear, knowing waiver of the right to take a dispute to court. As a general rule, any ambiguity about whether you have agreed to arbitrate gets resolved against arbitration.

Cast a wide net about what you will arbitrate

In other words, if two parties want to agree to arbitrate a dispute that might arise between them in the future, then they must say so in no uncertain terms. In the employment context, that means anticipating that a wide range of disputes could arise with an employee and defining the scope of the arbitration clause in your employment agreements broadly enough to cover all of them.

Two recent California appeals court decisions illustrate the point. Both concerning disputes in which employees claimed employers had violated a California statute. Both also focused on whether employees had clearly, knowingly agreed to arbitrate those statutory claims. 

In one, Zoller v. GCA Advisors, LLC, the federal Ninth Circuit Court of Appeals held that an employee had knowingly agreed to arbitrate a claim against her employer based on violations of California anti-discrimination statutes. In that case, the employment agreement contained a provision agreeing to arbitrate “any controversy or claim relating to or arising out of [Zoller’s] employment”. The court held that this broad language covered both claims arising under the employment agreement itself and claims involving violations of state statutes. 

In the other, Davis v. SSP America, Inc., a class of employees sued their employer for violation of California wage and hour statutes. The California Second District Court of Appeal denied the employer’s attempt to force the employees into arbitration, saying their union’s collective bargaining agreement did not clearly and unmistakably agree to arbitrate that type of claim. Instead, the agreement only mentioned arbitration in the context of resolving contractual “grievance” disputes, and so was not broad enough to cover wage-and-hour claims arising under state law. 

Takeaway: Know your employment agreements’ arbitration language

As surely as you know that your business will eventually face employment litigation, you cannot always know exactly what type of claim a former employee will make. To protect your enterprise, review your employment agreements to make sure they contain provisions broad enough to send any dispute that does arise to arbitration.




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