For years, the rules surrounding employment arbitration agreements in California have been in a state of flux. In light of the US Supreme Court's decision this week not to grant review in Iskanian v. CLS Transportation, that law remains unsettled. This uncertainty may persuade some employers not to put arbitration policies in place or to delay doing so until the law becomes more settled.
Dave Faustman, who has been defending the Iskanian case from the outset (with help from Yesenia Gallegos, Cristina Armstrong, Namal Tantula, Chip Zuver, Lorraine Harris, and others) and who argued the matter before the CA Supreme Court, has promised to give his take on the decision in a separate post. For now, what's important to know is that mandatory arbitration agreements can require employees to waive the right to pursue class actions. But whether employees retain the right to pursue a representative action under the Private Attorneys General Act ("PAGA") depends on which court you're in. State courts say "no," but most federal courts in California are saying "yes." Given that uncertainty, is it worthwhile to require employees to sign arbitration agreements?
I believe it is. Mandatory employment arbitration has its downsides. It's harder to get summary judgment, arbitrators are expensive, and you have very few options to correct an arbitration decision that goes against you. Plus, as long as Iskanian is controlling in state courts, you could find yourself litigating certain claims in arbitration and still having to litigate PAGA claims in court. Those are daunting obstacles, no question.
There are two reasons, however, why I think every California employer should seriously consider arbitration.
- You can require employees to waive the right to bring class actions. Any employer who's had to defend a class action knows that such waivers can easily save a company millions.
- The cases are easier to settle. You no longer have to hear about how sympathetic the jury will find the plaintiff and how the jury will be swayed by their emotions to award a gigantic verdict. That is far less likely when the trier of fact is an arbitrator with experience in these types of cases. I have no doubt that cases heading to arbitration settle more cheaply than cases heading to trial
If you're still not convinced, look at how hard the plaintiff's bar and the legislators they support fight to avoid mandatory workplace arbitration. Clarity and certainty in the law on this topic may still be years off. Still, employers looking to reduce their exposure to employment claims should seriously consider requiring their employees to sign arbitration agreements.
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