Arbitration Clauses in Employment Agreements

Have you been fired from your job? Do you believe that your termination was wrongful? Would you like to file a wrongful termination complaint against your former employer? Does your employment agreement contain an arbitration clause? What is arbitration? Does an arbitration clause preclude you from filing your claim in court?

What is Arbitration?
Arbitration is the most traditional form of private dispute resolution in which a neutral third party (ie. the arbitrator – who is usually a retired judge or attorney) renders a decision after a hearing at which both parties have an opportunity to be heard. Arbitration is designed to avoid the formalities, delays, expenses, and vexation of ordinary litigation (Black’s Law Dictionary, 6th Ed.).

Arbitration Clauses in Employee Agreements
Many individuals who have endured an injustice at the workplace seek remedy through the courts. However, many employment agreements contain an arbitration clause. Arbitration clauses, in general, stipulate that if there is any dispute or disagreement related to the employment (eg. claims of discrimination, wrongful termination, claims of harassment, etc.) both the employer and employee agree to submit the dispute to binding arbitration pursuant to the California Arbitration Act (California Code of Civil Procedure §1280, et. seq.). The decision reached at the end of an arbitration hearing is final and binding

But the simple inclusion of an arbitration clause does not necessarily preclude access to the courts. If a court finds that the employment agreement is an “unconscionable contract,” the court can refuse to enforce the arbitration clause (California Civil Code §1670.5(a)).

Validity of Arbitration Clauses
So what constitutes an unconscionable contract? In brief, a contract is unconscionable if it is an “adhesion contract,” which is to say that there is no equal bargaining power, no real negotiation, and an absence of meaningful choice (Ellis v. McKinnon Broad, Co. (1993); American Software, Inc. v. Ali (1996); Circuit City Stores v. Adams (2001)). Under California law, unconscionability consists of two components: (1) procedural; and (2) substantive.

Firstly, the procedural element focuses on two factors: oppression and surprise. Secondly, the substantive element focuses on “overly harsh” or “one-sided” terms within the contract (A&M Produce Co. v. FMC Corp (1982)). Arbitration clauses must meet certain requirements to be lawful, including “provid[ing] for more than minimal discovery,” and “not requir[ing]] employees to pay either unreasonable costs or any arbitrator’s fees or expenses as a condition of access to the arbitration forum” (Armendariz v. Found Health Psychcare Servs. (2000)).

What to do First?
Both procedural and substantive unconscionability must be present before a court will refuse to enforce a contract and its arbitration clause. If you believe that both are present in your case, or simply would like legal analysis, we recommend that you consult an attorney, who should b able to advise you of your choices.

[Many thanks to our friends at the Judicial Arbitration and Mediation Services (JAMS) for source materials on this topic.]

[Case References: Ellis v. McKinnon Broad, Co. (1993) 18 Cal.App.4^th 1796, 1803; American Software, Inc. v. Ali (1996) 46 Cal.App.4^th 1386, 1390; Circuit City Stores v. Adams (2001) 532 U.S. 105, 119; A&M Produce Co. v. FMC Corp (1982) 135 Cal.App.3d 473, 486-87; Armendariz v. Found Health Psychcare Servs. (2000) 24 Cal.4^th 83, 114]

[CA Statute References: California Code of Civil Procedure §1280; California Civil Code §1670.5(a)]

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about this topic and/or other areas of CORPORATE, EMPLOYMENT, and WRONGFUL TERMINATION law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. ALG intern Jonathan Tam contributed to this article. Copyright ALG 2005.

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No Job, No Paycheck? Ok...But No Unemployment Benefits?!

Have you been fired from your job? Were you laid off? Did you file for unemployment? Did your employer contest your right to receive benefits? Have you been denied benefits? Are you entitled to benefits?

Sometimes companies fire an employee, and then contest the employee’s right to receive unemployment benefits. Companies are entitled to contest a terminated employees access to unemployment benefits in certain instances, but in some cases companies abuse this process by contesting unemployment benefits in bad faith, effectively adding insult to economic injury.

Under California law, an employee is disqualified from receiving benefits if and only if he has either:

(a) left his most recent work voluntarily without good cause; or

(b) has been fired for misconduct connected with his most recent work (Unemployment Insurance Code, §1256).

“Misconduct connected with recent work” is a substantial breach by the employee of an important duty or obligation owed to the employer, willful or wanton in character, and tending to injure the employer (Maywood Glass Co. v. Stewart (1959)).

Accordingly, mere inefficiency, unsatisfactory conduct, or poor performance as the result of inability or incapacity, isolated instances of ordinary negligence or inadvertence, or good faith errors in judgment or discretion do not constitute misconduct, and cannot legally serve as justifications for denial of benefits. For example, even a single instance of an offensive remark to an employer, attributable to hotheadedness rather than deliberation, is not misconduct (Silva v. Nelson (1973) 31 Cal.App.3d 136).

If you have been terminated by your employer and denied benefits, you should contact an attorney to discuss your rights. Denials are can be appealed but you must act quickly.

[Case References: Maywood Glass Co. v. Stewart (1959) 170 Cal.App.2d 719; Silva v. Nelson (1973) 31 Cal.App.3d 136]

[CA Statute Reference: Unemployment Insurance Code, §1256]

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about this topic and/or other areas of CORPORATE, and EMPLOYMENT law, please visit http://www.adishianlaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. ALG intern Jonathan Tam contributed to this article. Copyright ALG 2005.

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"You're Fired!"

Have you been fired from your job? Was your termination in good faith, or was it wrongful? Are you unsure? Does it matter? Does your employment agreement contain an “at-will” clause?Does this mean that your employer can fire you for any reason?

"At-will” Employment
ALG receives numerous case submissions on this area of law. Almost every single one indicates that there is a general misunderstanding of the “at-will” clause found in many employment agreements, both on the employer and employee side. Many recently terminated workers who believe their termination was in bad faith do not even consider pursuing a wrongful termination suit because their employment was “at-will”, which, in general, provide that the employer may terminate the employment relationship at any time, with or without cause, and with or without notice.

Employers and employees, often mistakenly believe that an “at-will” clause permits employers to fire employees for any reason. This simply is not true. Under California law, no employer can terminate an employee for an illegal reason, and if they do, the law provides remedies. Some examples of illegal reasons include terminating someone on account of their race, gender, marital status, sexual orientation, disability, religion, and other protected classes. The same rationale applies for so-called 90 day probationary periods.

For employees, if you believe you have been terminated for an illegal reason, we encourage you to take advantage of our free, no obligation consultation. Or you can simply submit your case to our wrongful termination web page: http://www.AdishianLaw.com/wrongful_termination.html. For employers, if you have concerns about your termination process, we encourage you to take advantage our free, no obligation consultation to learn about potential legal exposure and practical steps to handling inevitable terminations legally.

The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about this topic and/or other areas of CORPORATE and EMPLOYMENT law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. ALG intern Jonathan Tam contributed to this article. Copyright ALG 2005.

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