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Employers Should Review Arbitration Provisions in Employment Agreements

After a recent California Court of Appeal ruling, employers should review any arbitration provision they may have in their employment agreements. In Mayers v. Volt Management Corp., an employee filed a complaint against his former employer alleging claims under the California Fair Employment and Housing Act (CFEHA). The employer filed a motion to compel arbitration based on the employee’s agreement to submit employment-related claims to arbitration. The employee’s agreement was evidenced by his signed employment application, employment agreement and acknowledgment of receipt of the employee handbook, all of which contained the employer’s arbitration provision. The Court affirmed the trial court’s denial of the motion to compel arbitration. The Court found that the arbitration clause was unenforceable for two reasons.

The first reason was that the employee was not provided with a copy of the controlling arbitration rules or information about how to access them. If an employer incorporates the rules of a particular arbitrator, such as JAMS or American Arbitration Association, the employer should ensure that employees are provided with a copy of the controlling arbitration rules and that the arbitration provision clearly identifies what the rules are such that the employee can easily access the rules.

Secondly, the Court found that the attorneys’ fees provision of the arbitration provision was far reaching. The unenforceable provision gave the arbitrator the authority to award reasonable attorneys’ fees and costs to the prevailing party. This exposed the employee to greater risk than if the employee had brought their claims in court. Therefore, the Court found that the provision was unenforceable.

Employers should review their arbitration provisions to ensure that they are not overly broad, causing the employee to be exposed to greater risk in arbitration than in a court proceeding. As the Mayers holding shows, the result of a poorly drafted arbitration provision may cause the provision to be unenforceable, allowing employees to bypass arbitration and file their action in court. If you have any questions or would like us to review the arbitration clause in your employment agreement, please contact Vogt, Resnick & Sherak.