NEW GUIDELINES ON EMPLOYEE
ARBITRATION AGREEMENTS IN CALIFORNIA
(2000) 

In the interest of reducing litigation costs, it has become common for employers to seek arbitration of disputes with their employees. Many employers now routinely incorporate mandatory arbitration clauses in their employment application forms or in their employee handbooks. In recent years, it has been unclear whether employers could require arbitration of employees’ claims for employment discrimination. For example, in 1998, the United States Court of Appeals for the Ninth Circuit (which includes the states of California, Oregon, Washington, Arizona, Nevada, Idaho, Washington, Alaska, and Hawaii) issued a decision prohibiting the enforcement of mandatory employment agreements to arbitrate discrimination claims under Title VII of the Civil Rights Act of 1964 (the Duffield case). 

Until recently, California state courts have been silent on the issue. But on August 24, 2000, the California Supreme Court issued a decision approving the application of mandatory arbitration clauses to employment discrimination disputes—as long as the arbitration agreements comply with certain procedural and substantive 
guidelines (the Armendariz case). 

The plaintiffs in Armendariz had signed an employment arbitration agreement providing that if their employment was terminated and they alleged claims against their employer, such claims would be submitted to binding arbitration. The agreement further provided that the plaintiffs’ remedies would be limited to lost wages from the date of discharge to the date of the arbitrationaward. 

The Armendariz Court first rejected the Duffield decision, both because the Duffield decision represented the minority position among federal courts and because the Armendariz Court found Duffield’s reasoning unpersuasive. The Armendariz Court then held that mandatory employment arbitration agreements were enforceable if the arbitration procedure permits the employee to vindicate his or her statutory rights. The arbitration agreement must meet certain minimum requirements, including all of 
the following: 

(1) providing for a neutral arbitrator; 
(2) providing for all the types of relief that would otherwise be available in court, and not limiting statutorily imposed remedies such as punitive damages and attorney fees; 
(3) providing for sufficient discovery procedures, including access to essential documents and witnesses; 
(4) requiring a written decision indicating the essential findings and conclusions on which the award is based that will permit a limited form of judicial review; and
(5) requiring the employer to pay all costs that are unique to arbitration, i.e. any costs of the type that the employee would not be required to pay if the action were brought in civil court. 

The message from the Armendariz Court is clear: employment arbitration agreements are enforceable in California state courts, even when the employee is alleging employment discrimination claims, as long as the arbitration agreement is carefully drafted. The arbitration agreement should not limit the type of damages available to the employee. It should provide for sufficient access to discovery prior to the arbitration, and a written decision indicating the basis for the award after the arbitration. It should indicate that the employer will pay all types of costs unique to the arbitration. Finally, if the agreement requires the employee to arbitrate all claims against the employer, it should also provide that the employer will arbitrate any potential claims against the employee. 

If the arbitration agreement meets these criteria, then the employer can require the employee to arbitrate any claims that would otherwise be filed in California state courts and avoid the delay and added expense of litigation in civil court. 

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