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A Plaintiff Strategy for
Challenging Pre-Dispute Mandatory Arbitration Agreements I. Federal Law - FAA
A. The Employer intends to compel seamen, railroad Employees, or any other class of workers engaged in foreign or interstate commerce into arbitration when such workers are not subject to compelled arbitration under the FAA. Harden v. Roadway Package Systems, Inc., 249 F.3d 1137 (9th Cir. 2001).
B. The Agreement is Not Explicit, Clear, or Unmistakable:
1. Agreements to waive statutory protections must be explicitly stated, with the waiver being clear and unmistakable. Wright v. Maritime Service Corp., 525 U.S. 70, 119 S.Ct. 391 (1998).
C. The Arbitration Agreement is Not in Writing:
1. To be valid, Agreements under the FAA must be “written agreements.” FAA § 1; Uniform Arbitration Act, § 1.
II. California Law: Attack the Formation of the Agreement
A. The Arbitration Provision is Not in Writing:
1. California likewise requires that agreements to arbitrate be in writing. Code of Civ. Proc. §1281.
B. The Employer Failed to Obtain An Actual Agreement from the Employee:
1. “[T]he unilateral promulgation by an Employer of arbitration provisions in an Employee Handbook does not constitute a 'knowing agreement'” to waive statutory rights. Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756 (9th Cir. 1997).
2. Arguably, an Employer who requires all amendments to policies to be in writing and mutually signed, may not unilaterally impose a new arbitration requirement on currently existing Employees. See, e.g., Badie v. Bank of America (1998) 67 Cal. App. 4th.
C. The Agreement Is Not a Validly Formed Contract:
1. Arbitration contracts must meet all of the valid tests for pertaining to formation, revocation and enforceability of contracts generally. Code of Civ. Proc. §1281. Kinney v. United Healthcare Services, Inc. (1999) 70 Cal.App.4th 1322.
2. Arbitration language that is complex, reviewed for only a short period of time, or difficult to understand, is subject to invalidity. Kinney.
III. California Law: Invoke Legal Bars Against the Agreement
A. The Agreement Causes a Waiver of Statutory Rights:
1. Employers may not impose shorter statutes of limitations that result in Employees being barred from bringing their statutory claims. Ting v. AT&T, 182 F. Supp.2d 902 (N.D.Cal. 2002). Shorter time limits are acceptable only when “reasonable.” Soltani v. Western & Southern Life Ins. Co., 258 F.3d 1038, 1043-45 (9th Cir. 2001).
B. The Agreement Purporting to Relieve a Party from Intentional Torts is Void:
1. California does not permit parties to enter into agreements where one side releases intentional torts from the other side. Cal. Civ. Code § 1668; Restatement (Second) of Contracts § 195. To the extent that employment arbitration agreements include waivers of such matters as assault, battery, invasion of privacy, defamation, and intentional infliction of emotional distress, such waivers would be void.
C. The Agreement Prevents the Employee from Participating in Class Actions:
1. Employers must permit Employees to participate in statutorily permitted employment related class actions. Keating v. Superior Court (1982) 31 Cal. 3d 584; Ramirez v. Circuit City Stores (1999) 76 Cal.App.4th 1229, review granted, later dismissed at 11 P.3d 955, 2000 Cal. LEXIS 8070, 101 Cal. Rptr. 2d 199.
D. The Agreement Prevents B&P §17200 Claims from Employees:
1. Employers must permit Employees to bring claims for injunctive relief under B&P §17200 and the Consumer Legal Remedies Act. Groom v. Health Net (2000) 82 Cal.App.4th 1189.
IV. California Law: Attack the Ambiguity of the Agreement
A. The Agreement Must Be for Real Arbitration, Not Something Else:
1. In California ambiguous contracts must be construed against the drafter. Civil Code §1654.
2. An in-house process labeled as “arbitration” may not have the hallmarks of a neutral arbitration, i.e., use of a neutral, third party decision-maker, an opportunity to be heard, etc. Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676.
3. An Agreement that the Employee (but not the Employer) was required to provide the other side with a statement of the nature of the claim, factual summary, and witness list invalidated an arbitration agreement. Also, a process which allows the Employer, but not Employee, to move for summary judgment, seek judicial review of the award, and select the arbitrator(s) is unacceptable. Hooters of America, Inc. v. Phillips., 173 F.3d 933 (4th Cir. 1999).
V. California Law: Attack the Unconscionability of the Agreement
A. The Arbitration Agreement is Unconscionable:
1. Procedurally: The contract was formed under conditions reflecting either oppression or surprise. Kinney.
2. Substantively: Are the contents one sided to the point of shocking the conscience. Stirlen v. Supercuts (1997) 51 Cal.App.4th 1519.
3. Where procedural unconscionability in securing agreement is high, then the Employee need only make a small showing of substantive unconscionability. Mercuro v. Superior Court of Los Angeles (2002) 2002 Cal. App. LEXIS 1593; Armendariz v. Foundation Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83.
4. Telling an Employee he did not have the option of whether to sign the agreement if he wanted to continue employment, or that there would be severe financial consequences from not signing, is considered highly oppressive, unconscionable conduct. Mercuro.
5. Where high procedural unconscionability exists, an Employee need only show “disadvantages” in selecting a neutral arbitrator to invalidate an arbitration agreement. Mercuro.
B. The Agreement Requires Confidentiality:
1. Employers may not require that all information regarding an arbitration remain confidential, as this requirement constitutes substantive unconscionability. Ting v. AT&T, 182 F.Supp.2d 902 (N.D.Cal. 2002).
C. The Agreement lacks mutuality:
1. Employers may not force Employees to arbitrate claims related to the same transactions or occurrences, when Employers need not arbitrate their claims related to those same transactions. Mercuro, Armendariz.
2. Retaining the right to seek injunctive and other relief in court for violations of proprietary or trade secret violations means the Employer has failed to meet the mutuality test. Mercuro. Stirlen.
D. The Agreement Allows Only the Employer, Court Access:
1. The arbitration result may not allow the Employer greater access to the Court system, after the arbitration decision, than is given to the employee. Saika v. Gold (1996) 49 Cal.App.4th 1074.
VI. California Law: Attack the Contents, Requirements of the Agreement
A. The Agreement Fails to Guarantee a Neutral Arbitrator:
1. Neutral arbitration is essential to the integrity of the arbitral process. Mercuro. Armendariz.
2. Evidence of the “repeat player” effect does not necessarily make the agreement unconscionable, but, where an Employee has no meaningful participation in the selection of the arbitrator, this fact suggests the agreement is unconscionable. See Armendariz; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951 (participation allowed) v. Mercuro (participation disallowed).
3. AAA is arguably not such a neutral, having filed briefs on behalf of employers in the Circuit City Stores, Green Tree Fin. Corporation -Alabama v. Randolph, and Wells v. Chevy Chase Bank, F.S.B. cases.
B. The Agreement Requires Greater Fees Than Does Litigation:
1. A valid agreement may not impose fees and costs on an Employee greater than those fees and costs in court for pursuing a statutory claim. Armendariz.
2. An Employer's agreement to waive excess fees and costs will not cure the defect, when the arbitration agreement contained a clause saying the agreement could only be modified by a writing signed by both parties. Failure of the Employee to so stipulate in writing means the agreement is invalid. Mercuro.
3. One court has allowed the severance of an unlawful requirement to share fees and costs to salvage an arbitration agreement. Swiderski v. Milberg, Weiss, Bershad, Hynes & Lorach (2001) 94 Cal.App.4th 719, 750.
4. An agreement providing that the Employee need not pay up-front fees and costs may still be invalid, if the arbitrator has authority to award such fees and costs to the Employer at the end of arbitration. Mercuro.
C. The Agreement Unfairly Limits Discovery:
1. Adequate discovery is indispensable for the vindication of statutory claims. However, the agreement need not require the full panoply of discovery normally available under the Codes of Civil Procedure. Armendariz at 104.
2. Courts assume Employers have a discovery advantage because they already possess many relevant documents, and they have in their employ many of the relevant witnesses. An Employer needs discovery far less than do Employees in preparing for arbitration. Mercuro.
3. Limiting total discovery to 30 total forms of discovery for each side is not, of itself, violative of the adequate discovery requirement. Mercuro.
D. The Agreement Limits the Damages, Remedies the Employee May Recover:
1. Agreements must allow Employees to recover the full range of remedies and damages to which they are entitled. Limiting damages to mere contract damages may invalidate such an Agreement. Stirlen v. Supercuts (1997) 51 Cal.App.4th 1519.
2. Agreements that purport to limit tort damages, statutory damages, or attorneys' fees actually contravene public policy and are therefore void. Graham Oil Co. v. Arco Products Co., 43 F.3d 1244 (9th Cir. 1994).
E. The Agreement Requires Payment of Prevailing Party Fees:
1. In statutory plaintiff fee cases, plaintiffs generally never need to pay fees when losing their lawsuit, except when the litigation was frivolous. Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro (2001) 91 Cal.App.4th 859.
F. The Agreement Permits Arbitrator to Award Less Than Full Attorneys Fees:
1. In statutory plaintiff fee cases, plaintiffs must be permitted to recover their full attorneys' fees. Pinedo v. Premium Tobacco Stores, Inc. (2000) 85 Cal.App.4th 774.
VII. The Agreement Violates the New Judicial Council Rules
A. Code of Civil Procedure Rules are to become effective on July 1, 2002.
B. The California Rules of Court, Division IV of the Appendix, has been amended to require, among the15 Ethics Standards for Arbitrators, the following:
1. Arbitrator must inform himself/herself of any matters that would be relevant if known by the parties to arbitration.
2. Arbitrator must disclose past, present, or expected personal relationships and affiliations.
3. Arbitrator must disclose past, present, or expected services as an arbitrator, potentially including names of parties, outcomes from decisions.
4. Arbitrator must disclose past, present, or expected attorney-client relationships.
5. Arbitrator must disclose past, present, or expected professional or financial relationships.
6. Arbitrator must disclose past, present, or expected relationships between the arbitrator and the dispute itself.
7. Arbitrator must disclose past, present, or expected memberships in any organizations that practice discrimination.
8. Arbitrator must disclose past, present, or expected relationships with the dispute resolution provider.
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