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RISKVUE ARCHIVE | INDUSTRY WATCH > EMPLOYMENT PRACTICES LIABILITY (EPL)
Focus on EPL in California:
California Supreme Court Says “Yes” To Arbitration
By Andrew B. Kaplan
In a victory for employers, the California Supreme Court has ruled that an employer may require both current and prospective employees to agree to arbitrate employment related disputes, including wrongful termination, discrimination and harassment claims, as a condition of employment. The case — Armendariz v. Foundation Health Psychcare Services — makes clear that California courts will not follow the 1998 decision of the U.S. Ninth Circuit Court of Appeals in Duffield v. Robertson Stephen &Co. In that case, the federal court held that an employer could not compel arbitration of an employee’s Title VII discrimination claim. The vast majority of employee claims in California are brought in state courts. The Duffield rule now will be restricted to federal court actions.
Arbitration is a forum favorable to employers for a number of reasons. A professional arbitrator is much less likely to be swayed by feelings and emotions than is a jury. Even where an arbitrator finds in favor of an employee, the arbitrator tends to be less inclined to award substantial damages for emotional distress, pain and suffering, as well as for punitive damages, when compared to a jury. In almost all cases there is substantially less time spent in connection with an arbitration than with a jury trial, and this means reduced attorneys’ fees. Finally, arbitration proceedings are held in private and are generally not a matter of public record. This may be a substantial benefit for employers seeking to avoid adverse publicity.
In Armendariz, the California high court concluded that employment related claims, including claims under both federal and state anti-discrimination statutes, are arbitrable if the arbitration agreement: (1) provides for neutral arbitrators; (2) provides for more than minimal pre-hearing discovery; (3) requires a written award that permits for a limited form of judicial review;(4) provides for all of the types of relief that would otherwise be available in court; and (5) does not require employees to pay the costs of the arbitrator or any other costs which they would not otherwise have to pay in court.
Even though the Court’s decision exceeded 50 pages, certain questions were expressly left unanswered. These include application of the Federal Arbitration Act (which would permit mandatory arbitration of wage disputes otherwise within the jurisdiction of the California Labor Commissioner) to employer-employee arbitration agreements, and the scope of judicial review to which an arbitration award will be subject. These matters await future judicial clarification.
In the meanwhile, however, the requirements laid down by the Supreme Court necessitate the amendment of most existing employer-employee arbitration agreements. 
ABOUT THE AUTHOR
Andrew Kaplan is a management labor consultant with the employment law department of Silver & Freedman in Century City, California. He has 26 years of experience working with employers in all phases of employer-employee relations. Mr. Kaplan can be reached at akaplan@silfre.com.
riskVue | The webzine for risk management profesionals
October 2000
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