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RISKVUE ARCHIVE | INDUSTRY WATCH > EMPLOYMENT PRACTICES LIABILITY (EPL)
The End of Binding Arbitration?
Arbitration Clauses—A Second Look
By Joseph P. Breen, Esq.
It has long been the conventional wisdom for management attorneys to recommend to their clients the inclusion of a mandatory arbitration clause in employment contracts and personnel policies. Although many valid reasons support the continued use of such agreements, the rules of the game may be changing.
Still Enforceable?
The enforceability of arbitration agreements is in flux. Recently, a federal appeals court held that an employee does not lose his or her right to sue for discrimination even if the agreement was executed in writing. (Duffield v. Robertson, Stephens & Co.) There remains a split in the California Courts of Appeal regarding the enforceability of these provisions as shown by the 6th District Court of Appeals’ very recent rejection of Duffield in Lee v. Technology Integration Group. (1999 Cal.App. LEXIS 134, February 19, 1999.) It is likely that the California Supreme Court will decide this issue within the year. In addition, it is nearly certain that Governor Gray Davis will sign proposed legislation further restricting the enforceability of such agreements.
At present, employment arbitration agreements are likely to be enforced when it can be shown that the employee has knowingly, voluntarily and specifically waived rights.
Still Desirable?
The insertion of an arbitration provision was once automatic for most employers in their employment contracts and personnel policies. As previously discussed in this Newsletter (Summer 1997), a primary benefit of such agreements was to eliminate uncertainty, particularly the risk of uncertain jury verdicts and punitive damages.
However, the employer should keep in mind that the arbitration process itself is not without uncertainty. In addition to the increasing uncertainty of enforcement of such provisions, the cost of preparing for arbitration hearings may no longer significantly differ from costs of defense in a civil action depending on the facts of the case. further, and perhaps more important, an arbitrator is not bound to follow the strict letter of the law in the same manner as a judge in a civil action is required to do, and his or her decision generally cannot be appealed. Consequently, the single biggest risk of selecting arbitration over litigation may be losing the right to bring pre-trial summary procedures such as summary judgment motions that often result in the dismissal of unmeritorious claims of employees.
The Crystal Ball
While there is concern that the California Legislature may prohibit any form of arbitration agreement affecting an employee’s rights to sue for discrimination, the courts and legislature may take a more measured approach. In proposed legislation an employer who requires arbitration as a condition of employment may be required to pay the employee’s cost of arbitration in addition to its own, and employees may not be required to submit to arbitration unless they agree to do so at the time the dispute arises.
We will look forward to keeping our clients and readers informed as this important area of employment law continues to develop. 
ABOUT THE AUTHOR
Source: Employment Law Report. Copyright 1999 by Ropers, Majeski Kohn & Bentley, A Professional Corporation. Used with permission.
riskVue | The webzine for risk management profesionals
May 1999
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