Bound by an Arbitration Provision?  Make Sure You’re Clear About Class Action Suits

Is Your Business Employment Contract Bound By An Arbitration Provision?

As a business attorney in Orange County, I prepare a good number of employment agreements for my corporate clients.  A lot of them like to include binding arbitration provisions in their  agreements because they want faster resolutions to any disputes, and they simply don’t trust juries.  It’s at that point that I like to sit them down and give them the pros and cons of binding arbitration.

Some of the more well known “pros” include the relative speed of the proceedings, the reduced costs associated with a truncated discovery process (in some cases), and the absence of a jury who might be swayed by a smooth plaintiff’s lawyer.  Some of the “cons” include the fact that arbitration can be every bit as expensive as a court fight (especially when you take a retired judge’s hourly rates into account) and the fact that the parties are leaving a lot of power in the hands of just one person – the arbitrator.

But since the California Supreme Court came down with its sharply divided decision in Sandquist v. Lebo Automotive, Inc. awhile ago, when discussing arbitration provisions with my business clients, I’ve made it a point to also raise the issue of class actions.  The facts in that case are relatively straightforward.  An employee filed a discrimination class action lawsuit against his employer, alleging that he, and other “current and former employees of color” were discriminated against because of their race.  This employee, who had signed an employment agreement containing an arbitration clause, filed a motion to compel arbitration.  The court granted the motion, and in dismissing the class claims, ruled that the court, and not an arbitrator, had the authority to determine whether class arbitration was permitted.

The appeals court reversed, holding that such authority rested with the arbitrator, and thus it was the arbitrator who could decide whether or not he/she could hear a class claim in arbitration.  In July of 2016, the California Supreme Court affirmed (barely) the appellate court’s reversal of the trial court, holding that the decision of who decides whether a class claim may be heard in arbitration should be made based on each agreement’s terms (resolving all ambiguities in favor of the employee, of course).  That this decision went against a lot of other courts throughout the country seems not to have mattered.  What does matter is that the arbitration provision in question was so broadly worded as to the types of cases that were to be heard in arbitration, that the court ruled that class action claims were among those.

So, why is this important?

Because while it may be advantageous to have an arbitrator hear employment related claims (e.g., discrimination, wrongful termination, etc.), given the immensity of damages available in class action lawsuits, it might not be such a good idea to have all that authority rest in one person – especially when appealing the rulings of that one person is a challenge in the best of times.  In other words, while I might support my client’s inclusion of arbitration provisions in their employment agreements, I’m much less willing to advise them to have arbitrators hear class action claims.

The solution to the dilemma is simple.

Make sure that the arbitration provisions your business attorney drafts for you are crystal clear as to whether class claims are to be arbitrated or not.  Also, if your employment agreements contain provisions barring class claims entirely, suggest to your business lawyer that such provisions include a clause that states that any dispute related to class claims must be decided by a judge, not an arbitrator.

 

 


After graduating Phi Beta Kappa from Berkeley and attending law school at UCLA, Michael Kushner started practicing law in Orange County. Now, almost 20 years later, Mr. Kushner is a top rated business and corporate attorney in Orange County, a frequent lecturer on a variety of business, corporate, and employment related matters, and one of the most highly regarded attorneys featured on Bill Handel’s (KFI AM 640) handelonthelaw.com (in fact, he’s Bill Handel’s lawyer).

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