This week’s question comes from J.J. in San Francisco, who writes:
Q: “I just started a new job, and they made me sign an arbitration agreement. Is that OK? What does it mean?
A: J.J., As you have discovered, more and more often employers are requiring employees to sign arbitration agreements as part of an offer of employment. While the arbitration agreement is often mixed in with a stack of other new-hire paperwork, it is much more sinister than most of the other documents employees are asked to sign.
As part of the Bill of Rights, this country guaranteed in the Seventh Amendment that “the right of trial by jury shall be preserved …” California’s constitution similarly guarantees that “Trial by jury is an inviolate right and shall be secured to all.”
The main purpose of an arbitration agreement is to have the employee waive this right to a jury trial — to waive the right to use the judicial system to resolve legal disputes. Instead, an arbitration agreement requires that any claims or potential lawsuits be brought in “arbitration,” which is a quasi-judicial system in which, generally, a single arbitrator determines the merits and value of a claim.
For the most part, it is entirely legal for an employer to make an arbitration agreement a condition of employment with the company. However, the courts have put some protections in place for employees. In order to be binding and actually force claims out of the judicial system, the agreement must meet general state law contract principles. In particular, the agreement to arbitrate must not be “unconscionable.” In this context, the term “unconscionable” has two parts: One part is procedural and the other is substantive. Both must be shown to invalidate an arbitration agreement, however, they work on a sliding scale — the more of one part there is, the less of the other is required.
Procedural unconscionability is shown by the manner in which the arbitration agreement is presented. In your case, it was a condition of employment. That, alone, can meet the minimum requirements of proving that the agreement is procedurally deficient. There can also be other procedural problems: the agreement is not in the employee’s first language; it is mixed with many other papers with limited time to review or it may be just a paragraph in a large handbook; or it may not have a signature line signed by the employee. When these types of conditions exist, the arbitration agreement may be considered “procedurally unconscionable.”
Substantive unconscionability looks to the actual terms of the arbitration agreement to see if those terms unfairly limit the employee. Those requirements were first laid out, as they relate to employment discrimination and other statutory claims, in the California Supreme Court case Armendariz v. Foundation Health Psychcare
Services, Inc. The court articulated the specific areas that, if not present in an arbitration agreement, may cause it to be considered substantively unconscionable:
1. There must be a truly neutral arbitrator. The employer cannot require that a person employed or otherwise connected to the company make the determination of the merits or value of a claim.
2. It must allow for more than minimal discovery. Discovery is the process in which each party finds out the details and supporting documents regarding the claims and defenses of the other side. This requirement helps make sure that employees have the opportunity to find out the information necessary to prove their claim.
3. There must be a written decision by the arbitrator. This is required to make sure the arbitrator is applying the correct law accurately.
4. The employer cannot limit the types or amount of damages that would have been available to the employee had they been allowed to use the judicial system.
5. The agreement must not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of arbitration.
6. The agreement must be mutual. It must apply equally to claims which may be brought by both the employee and the employer. It cannot be a one-way, unilateral agreement.
Arbitration agreements in employment are a growing phenomenon. Given that the need for a job is usually of primary importance, and requiring arbitration as a condition of receiving that job is entirely legal, you certainly did nothing wrong by signing it.
Hopefully, your employment goes forward without any legal issues. If, however, you do have a legal issue arise, consult with a employment law trial attorney to determine if the arbitration agreement is flawed in such a way that you may still have the opportunity to bring the matter in open court.