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Employment Arbitration Must Track State Law Procedures and Rights in California
Description California's high court held an employment arbitration agreement to be unenforceable because it limited the remedies available to less than what were available to employees under state law. Further, arbitration cannot provide fewer rights for employees in terms of fairness and cost allocation than if they were in court proceedings.
Topic Alternate Dispute Resolution
Key Words Mandatory Arbitration; Employment
C A S E   S U M M A R Y
Facts Two employees sued their former employer for wrongful termination. Both had worked for a year when they were told that their positions were "being eliminated" and that they were "being terminated." They contended that during employment they were subject to sex discrimination. They had signed arbitration clauses covering any claim of wrongful termination and limiting their damages to lost wages for a specified time; no other remedy would be allowed. The trial court held the arbitration agreement to be an unconscionable contract and not enforceable. The appeals court held that the arbitration agreement was enforceable. Plaintiffs appealed to the California high court.
Decision Reversed. The arbitration agreement is not enforceable because it does not allow the employees to vindicate rights established by statute. This agreement limited the remedies available to fewer than what are available by statute. To limit damages to less than what is provided by statute is a violation of public policy and is unconscionable. While the agreement strictly limited the rights of employees to sue the employer, it did not limit the right of the employer to sue the employee. Further, arbitration must meet certain standards of fairness, similar to what an employee would find in court proceedings. The employer must bear its own arbitration costs, rather than split them with the employee, as the agreement called for, and the arbitrator must have the power to order the same remedies available to a judge following state law.
Citation Armendariz v. Foundation Health Psychcare Services, Inc., 2000 WL 1201652 (Sup. Ct. Calif., 2000)

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