Arbitration Agreements A Discussion on the Advantages and Tips on Contractual Construction by Lani Dorsey

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1 Arbitration Agreements A Discussion on the Advantages and Tips on Contractual Construction by Lani Dorsey In grievance arbitrations, the arbitrator derives his or her authority from the contract and has no authority to change or add to the contract. In deriving a solution to grievances the arbitrator is limited to deciding what the parties intended in their agreement. If the language in the contract is unclear, often the arbitrator has to decide the parties intent. He or she will usually refer to the parties past practices and history in those circumstances. Advantages Grievance arbitration can and has often been used by the public sector as an alternative solution to resolve disputes in the interpretation and enforcement of rights under an existing contract, employer s policies or regulations. Statistics show that California jury awards for employment related cases have doubled from an average of $432,628 in 1993 to an average of $875,260 in 1994, with one fourth of all plaintiff s verdicts in excess of one million dollars. There are many advantages to using arbitration in comparison to the court system approach: (1) It is quicker. The average time to a decision in arbitration is a year compared with one to two years for a jury trial. (2) It costs less. Statistics from a major arbitration provider show that the average award in arbitration is only $250,000. Arbitration can also cost less than a jury trial because there is no jury attendant costs and arbitration involves little or no discovery. In addition to the hard costs, there are also savings in the organization s staff time. Since discovery is limited, if permitted at all depending on the arbitration provider, employees are not held up in timeconsuming depositions and deposition preparation, mandatory settlement conferences or in long trials. (3) It is more convenient. Arbitration allows the parties to select the fact finder, the dates and where the hearings will be held. (4) Less Publicity. There is no public record of the proceedings. This can be an important factor especially in cases that have a potential to escalate and gain media attention. In California, courts often rely on the principles developed in three U.S. Supreme Court cases known as the Steelworkers Trilogy. First, that arbitration must be agreed upon in the form of a contract. A party cannot be compelled to arbitrate a dispute that he or she has not agreed to arbitrate. Second, the courts must decide if a dispute is arbitrable, unless the parties clearly and unmistakably provide otherwise in the contract. Third, if the contract is not clear, the grievance should not be denied arbitration. In the case of Nolde Bros. Inc. v. Bakery Workers, the United States Supreme Court ruled that arbitrability applies to any grievance based on provisions of a contract, even after the contract expires, unless there is an express agreement or a clear implication not to arbitrate in the contract.

2 Arbitration 2 In Golenia v. Bob Baker Toyota, a California federal district court ruled that an employee is bound by an employment agreement to arbitrate his Americans with Disabilities Act (ADA) claims. In this case, Golenia signed an employment agreement that included an arbitration clause and was given an employee handbook that described the arbitration provisions by Toyota. Golenia later sued his former employer, Bob Baker Toyota, for ADA violations that allegedly occurred during the course of his employment. The court found that Golenia was bound by the arbitration provision of the employment agreement despite his failure to read it before he signed it. The court also concluded that the agreement was not an adhesion contract because the arbitration clause applied to both the employer and the employee. Each gave up their rights to a court resolution and agreed to abide by the agreed upon provisions. The court further held that since the arbitration clause made clear that any disputes between the employer and the employee were to go though arbitration the arbitration clause did not need to specifically list statutes whose procedures will be waived in favor of arbitration. Contractual Construction Provisions calling for employment disputes to be resolved by arbitration are routinely Recently however, courts have made it more difficult to challenge the validity of mandatory arbitration clauses. In Brookwood v. Bank of America, a California appellate court found that an employee who stated in employment contracts and/or personnel and policy manuals. However, the organization should also take all necessary actions to give the employees sufficient notice that they have bound themselves to arbitration regarding any employment disputes. In Prudential Insurance Company of America v. Lai, the Ninth Circuit ruled that employees may not be forced to arbitrate sexual harassment and discrimination claims unless they knowingly waive their statutory remedies. The court stated that the arbitration agreements between Lai and Prudential Insurance Company of America did not refer to employment disputes. The agreements did not make clear that any dispute between the employee and employer must be submitted to arbitration. The court also rejected an argument that ADA claims require some higher form of waiver than other statutory claims. The court stated that the ADA encourages arbitration and other alternative means of dispute resolution. Following this trend, a leading arbitrator stated that it only accepts cases where the employment agreements include mandatory arbitration clauses if the agreement gives employees the right to: help choose the arbitrator, be represented by counsel, conduct some discovery, and recover damages that would be available in court. If the arbitration clause does not comply with these standards, the arbitrator does not accept the case unless both parties agree to comply with the standards. signed an agreement to arbitrate employment disputes must submit her discrimination claims to arbitration. As part of her employment with Bank of America, Brookwood signed an agreement that

3 Arbitration 3 required her to arbitrate employment disputes under National Association of Securities Dealers rules. She also signed a Uniform Application for Securities Industry Registration that required her to arbitrate employment disputes. Brookwood signed a separate employment agreement with the bank that did not include an arbitration clause. She sued the bank for wrongful termination based on sex discrimination. Although Bank of America was not a party to the two agreements opting for arbitration that Brookwood signed, a court ruled that she must arbitrate her claim. The court distinguished this case from Prudential Insurance Company of America v. Lai, where it permits an employee to rescind an agreement based on unilateral ignorance of a contract term. In the case of Brookwood, the court ruled that the arbitration clauses were broad enough the cover the discrimination claims. The court found that the bank s employment agreement, the registered representative agreement, and the Uniform Application for Securities Industry Registration form were in essence the same transaction and should be considered together. Similarly, in a case currently under review by the California Supreme Court, Clark v. Prudential Securities, Incorporated the Fourth Circuit attempted to extend the validity of mandatory arbitration agreements, holding that the mandatory arbitration clause in the contract had to be enforced unless the defendant maintained such a level of dominion and control over the plaintiff, that the plaintiff was prevented from reading the agreement. Therefore, in solidifying the arbitration provisions the employer should clearly acknowledge in words or effect that the employee is agreeing to arbitrate any and all disputes arising out of, or relating to, his or her employment, and that the employee is waiving the right to a jury trial. This provision may be separate from the employment offer or the policy manual, but should be signed or initialed by the employee. Often not thought of in the preparation of the arbitration clause is the subject of who should decide the arbitrability of a dispute. Contrary to common belief, the courts do not presume it to be the arbitrator. The United States Supreme Court on May 22, 1995 held in First Options of Chicago v. Kaplan that who decided arbitrability is a matter of what the parties agreed to. However, pursuant to the rule laid down in AT&T Technologies, Inc. v. Communications Workers, courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear evidence in the contract stating so. In the issue of whether a dispute is arbitrable, as discussed previously, doubts should be resolved in favor of arbitration. On the contrary, if the issue of who decides arbitrability is to be the arbitrator, the courts tend to look at the agreement to see if it clearly states so. The arbitration provision may also include a condition to mediate first. Mediation, unlike arbitration, seeks to bring the parties together in an attempt to settle the dispute. There is no fact finding and there is no award. It gives the employee an opportunity to discuss his or her argument to a third party. It also gives both parties an independent view of the merits of their case which may lead to a quick settlement. In SEIU, Local 347 v. City of Los Angeles, a

4 Arbitration 4 California appellate court decided that a grievants right to premium pay under a Los Angeles City administrative code provision is subject to arbitration. The city refused to proceed with arbitration because it As in the Steelworkers Trilogy, The U.S. Supreme Court held that the defendant had to resolve doubts about the arbitration clause in favor of coverage. A mandatory arbitration provision is fairly easy to provide for new employees, but what about existing employees who were not confronted with the provision at the start of his or her employment? It is not always the best approach to negotiate with an employee his or her continued employment in the matter. However, an organization may wish to consider incentives such as additional paid leave, bonuses or such other incentives over and above continued employment, specifically tied to the employee s agreement to be bound by arbitration. Pitfalls While arbitration agreements are preferred among the courts and a positive alternative to using the court system, an employer should caution not to use the arbitration process to unfairly prejudice the rights of employees or curtail statutory remedies. The dispute may end up in court and the court may block the organization s right to arbitrate future disputes. An example of this situation is the case of EEOC v. River Oaks Imaging and Diagnostic. Here, the court terminated River Oaks arbitration program after finding that River Oaks arbitration policy was so biased in favor of the employer that it denied the employee his or her due process. Similarly, an arbitration policy should not contended that it was outside of the terms written in the Memorandum of Understanding agreement. attempt to deter an investigation of discrimination practices by the EEOC or other authorized agency. Employees can still file discrimination charges with the appropriate state or federal agencies which will not be barred by an agreement to arbitrate. In Graham Oil Company v. Arco Products, the Ninth Circuit held that arbitration clauses should not attempt to limit remedies provided under the relevant statute that forms the basis of the claim. Although not an employment case, the court struck an arbitration clause in a franchise agreement that deprived the arbitrator of the power to award punitive damages or attorneys fees both of which were provided for in the relevant statute. The Ninth Circuit stated that the plaintiff s consent to arbitrate does not mean that they may be forced by those with dominant economic power to surrender their statutory rights and benefits established by Congress. In finding that the arbitration clause involved not one but three illegal provisions, the court invalidated the entire arbitration agreement. Here, the court is clearing saying that arbitration clauses may not be used to circumvent, curtail or avoid statutory remedies. Two pending cases are testing arbitration agreements. In Duffield v. Robertson Stephens & Company, in the Northern District of California, the plaintiff contests mandatory arbitration claiming that it deprives her of her constitutional right to a

5 Arbitration 5 jury. And, in Burton v. Archer Management Services of the San Francisco Superior Court, the plaintiffs argue that their employment arbitration agreement is an unfair and unlawful business practice pursuant to the California Business and Professions Code Section (Unfair 1. Employment Law Trends in the 1990's by Epstein, Becker & Green, P.C. 2. Legal Trends 96 by Kay & Stevens 3. California Public Sector Labor Relations by Members of the Labor and Employment Law Section State Bar of California Competition) because it deprives them of punitive damages, limits their statutory remedies, modifies the limitation period and limits their discovery. References: Submitted By: Lani Ann Dorsey Administrative Analyst 5555 Arlington Avenue Riverside, CA (909) x306