Arbitration Agreements

Navigating Arbitration Agreements Employment Cases in California

This article presents an in-depth analysis of arbitration agreements in California employment cases. It examines their enforceability, governing laws, and the reasons employers favor them.

The focus includes the arbitration process, the role of contract law and case law requirements, and the impact on class action lawsuits.

The implications of recent legislation, such as AB 51, are also discussed.

The goal is to provide a comprehensive understanding of these complex legal instruments in the Californian employment landscape.

Arbitration Agreement: What is this?

What exactly is an arbitration agreement within the context of employment cases in California?

An arbitration agreement is a legally binding contract where the employer and the employee agree to resolve any employment-related disputes through arbitration, rather than litigation in court. Typically embedded in an employment contract, this agreement waives the employee’s right to sue.

The arbitration process is an alternative dispute resolution method that is simpler and more streamlined than civil court litigation. It involves a private arbitrator, exchange of information, and potentially, testimony from witnesses.

Employers often favor arbitration because it is cost-effective, and efficient, and allows the option to select arbitrators deemed favorable to their case. However, such agreements must meet specific legal requirements to be enforceable.

Arbitration Stages:

In the context of employment disputes, the arbitration process typically involves several distinct stages. This process provides a forum where disputes can be resolved outside of the traditional court system.

  • Selection of Arbitrator: An impartial third party, often with expertise in the relevant field, is chosen by the disputing parties.
  • Document Exchange: This is the discovery phase, where each side shares relevant information with the other.
  • Hearing: Similar to a trial, each side presents its case. Witnesses may be questioned under oath.
  • Decision: The arbitrator delivers a legally binding decision.
  • Appeal: In rare instances, the decision can be appealed. This is largely dependent on the terms of the arbitration agreement.

Why Employers Prefer Employees to Sign Arbitration Agreements?

Due to the efficiency and cost-effectiveness of arbitration, many employers mandate employees to sign arbitration agreements as part of their contractual obligations. The primary motivations for this requirement are financial and procedural. Arbitration typically has lower costs, less complexity, and shorter time frames than civil litigation, thereby reducing the burden on employers.

Advantages of Arbitration for Employers Potential Concerns for Employees
Lower costs and quicker resolution of disputes
Loss of rights to a jury trial
Confidentiality of proceedings
Limited opportunity for appeal
Ability to choose a favorable arbitrator
Potential for perceived bias
Limited discovery, reducing legal fees
Lack of transparency in proceedings
No public record of the proceedings
Potential pressure to settle

Employers view these agreements as a pragmatic approach to dispute resolution. However, employees should be aware of potential drawbacks before signing.

Who gets the arbitrator?

Transitioning from the advantages and potential concerns associated with arbitration agreements, the process of selecting the arbitrator becomes a pivotal point in the arbitration proceedings. The choice of arbitrator can significantly influence the outcome of the arbitration due to their role in interpreting and applying the law to the facts of the case.

In California, the selection process includes:

– Both parties commonly have a say in the selection of the arbitrator.

– A neutral third-party service like the American Arbitration Association may be involved.

– Arbitrators are often retired judges or experienced attorneys.

– The arbitrator must be impartial and free from bias.

– The arbitrator’s fees are usually split equally between the parties unless otherwise agreed.

These guidelines ensure a fair and impartial process.

Exactly who pays for arbitration fees?

Regarding the allocation of arbitration fees, it is typically stipulated in the arbitration agreement whether the employer or employee will bear the cost, or if the expenses will be shared. California law, however, requires employers to pay for all costs unique to arbitration, to prevent financial hardship from deterring employees’ access to justice. It’s also important to note that California courts have invalidated agreements that place undue financial burden on the employee.


Party Responsibility
Pays all costs unique to arbitration
May contribute, but not to the point of financial hardship
Costs may be divided, but the employer's contribution remains significant

These guidelines aim to protect employees from the prohibitive costs of arbitration and ensure fair dispute resolution.

What laws govern arbitration agreements

In the realm of employment disputes, arbitration agreements are primarily governed by two major laws: the California Arbitration Act (CAA) and the Federal Arbitration Act (FAA). The CAA and FAA set forth the guidelines for the enforceability and interpretation of arbitration agreements.

The CAA provides the procedural rules for arbitration in the state of California and is codified in sections 1280-1294.2 of the California Code of Civil Procedure.

The FAA, a federal law, applies nationwide and can preempt state laws that are hostile to arbitration. It is codified in Title 9 of the United States Code.

In case of any conflicts between the CAA and the FAA, the FAA would generally preempt the CAA. A recent California law, SB 707, affects the payment of arbitration fees and impacts the enforceability of arbitration agreements.

What categories of claims can be subject to arbitration??

While federal and state laws govern the enforceability and interpretation of arbitration agreements, it is important to note which types of employment claims can be subject to arbitration.

Generally, claims that arise from statutory rights, such as discrimination, harassment, retaliation, and wage and hour disputes, can be arbitrated. This includes claims under the Fair Labor Standards Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the California Fair Employment and Housing Act.

It’s crucial, however, to understand that the scope of claims subject to arbitration can vary based on the specific language of the arbitration agreement. Consequently, both employers and employees should obtain legal counsel before drafting or signing such agreements.

When is an arbitration agreement enforceable??

Transitioning from the types of claims that can be subject to arbitration, we now turn our attention to the critical question of when an arbitration agreement is enforceable.

The enforceability of an arbitration agreement in California employment cases depends on several critical factors:

– The agreement must satisfy basic contract law requirements, such as conscionability and consideration.

– The presence of fraud, duress, mistake, or lack of capacity could render the agreement unenforceable.

– The agreement must conform to the specific requirements of the California Arbitration Act and the Federal Arbitration Act.

– In case of conflicts between state and federal law, federal law takes precedence.

– The agreement cannot be made a condition of employment in California.

Understanding these factors is vital when navigating the complex landscape of arbitration agreements.

Contract Law Requirements Governing Arbitration Agreements

The contract law requirements for arbitration agreements are pivotal to their enforceability and must be carefully considered in the context of California employment cases.

To be legal, these agreements must satisfy specific standards, including conscionability, consideration, and absence of fraud, duress, mistake, or lack of capacity.

Conscionability refers to the fairness and equality of the agreement, ensuring that it is not one-sided.

Consideration means that both parties receive something of value, in this case, the employee gives up their right to sue, and the employer obtains dispute resolution.

The agreement must be free from instances of fraud, duress, mistake, or lack of capacity.

These elements ensure the arbitration agreement’s validity, safeguarding the interests of both parties.

Requirements in Case Law for the Enforceability of Arbitration Agreements

Although arbitration agreements are largely governed by contract law, it is crucial to note that specific case law requirements are also instrumental in determining their enforceability.

California courts have established several criteria that an arbitration agreement must meet:

– The arbitration agreement cannot be unconscionable. This means it cannot be unjustly one-sided or overly harsh.

– There must be mutual consent to arbitrate. Both parties must agree to resolve disputes via arbitration.

– The agreement must provide for adequate remedies. This means the agreement should provide the possibility of the same remedies that would be available in court.

– The agreement must specify a neutral arbitrator. The arbitrator chosen must be impartial and unbiased.

– The arbitration process must model the basic procedural elements of a court trial, ensuring a fair hearing.

The Impact of Arbitration Agreements on Class Action Lawsuits in California

In many instances, arbitration agreements significantly impact class action lawsuits in California by imposing constraints on employees’ ability to collectively litigate workplace disputes. These agreements often contain class action waivers, which expressly prevent employees from joining together to file a class action lawsuit. Instead, each employee must separately arbitrate their claims, which may limit their bargaining power and resources.

Nonetheless, the U.S. Supreme Court has upheld the enforceability of these waivers, further solidifying their presence in employment contracts. However, California courts are known for their rigorous scrutiny of these agreements, specifically focusing on their fairness and conscionability.

As such, the interplay between arbitration agreements and class action lawsuits remains a complex and evolving area of California employment law.

AB 51: What You Need to Know?

While it is crucial to understand the fundamental principles of arbitration agreements, it is equally important to delve into the specifics of Assembly Bill 51 (AB 51), a significant California law affecting the enforceability of these agreements.

Enacted on January 1, 2020, AB 51 aims to protect the rights of employees and job applicants by preventing employers from mandating arbitration as a condition of employment. Key points of AB 51 include:

– It prohibits retaliation against a person who refuses to consent to an arbitration agreement

– It doesn’t apply to post-dispute settlement agreements or negotiated severance agreements

– It is not intended to invalidate arbitration agreements entered into willingly by employees

– It doesn’t affect agreements enforceable under the Federal Arbitration Act (FAA)

– It is subject to legal challenges regarding its compatibility with federal law.


In conclusion, arbitration agreements in California employment cases are crucial instruments for resolving disputes efficiently outside the court system. Their enforceability rests on meeting certain legal and contract law requirements.

These agreements also have significant implications on class action lawsuits and are influenced by legislation such as AB 51. Understanding their nuances is vital for both employers and employees, aiding in the creation of fair, legally sound, and beneficial dispute resolution mechanisms.

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