Employer’s Arbitration Agreement Found Invalid, Unenforceable*

March 25, 2013 by Teague Paterson

In a recent US Supreme Court decision, it appears that class-action arbitration waivers signed by employees’ as a condition of employment will not be upheld by the courts.  Beeson, Tayer and Bodine (BT&B) summarizes a case that goes to the heart of common issues in Employment Law related to pre-employment agreements.  In AT&T Mobility v. Concepcion the US Supreme Court recently overruled the California Supreme Court’s finding that an arbitration provision waiving the right to class-action arbitration was illegal, California courts have shown reluctance to follow Concepcion when considering arbitration agreements between an employer and an employee.  In a case decided this week, Compton v. Superior Court, the plaintiff-employee sued her employer for labor code violations, including unpaid wages, overtime and penalties.  Although the case was filed well before AT&T Mobility v. Concepcion was decided, after that decision was issued, the employer sought to compel arbitration against Ms. Compton. The Court of Appeals reversed the Superior Court’s decision to enforce the agreement, noting that although Concepcion rejected “one-sidedness” as a basis for invalidating arbitration agreements, the Supreme Court did not address or overrule California’s “unconscionability” doctrine, which includes a consideration of the imbalance of power between the parties to the arbitration agreement.  (If a contract is unconscionable, a Court will not enforce it as a matter of public policy). The Compton court noted that this consideration is particularly important in the employment context, especially when, as in this case, the employer will not hire the employee unless she signs the agreement. The court found the particular arbitration agreement to be invalid, in part, because:

• Although employment claims brought by the employee were subject to arbitration, claims more likely to be brought by the employer, such as claims stemming from unfair competition or trade secret disclosure, were not.
• The agreement’s one-year limitation period was shorter than the statute of limitations applicable to employment claims, and the claims likely to be brought by the employer, again unfair competition claims and trade secret violations, were given a much longer limitations period under the arbitration agreement.
• Although state law mandates attorney’s fees to plaintiffs prevailing in wage claim and discrimination actions, the arbitration agreement stated that the arbitrator has the authority to award attorney’s fees in accordance with applicable law but ultimately gave an arbitrator discretion to award or decline to award fees.

BT&B has been representing employees on issues related to the imbalance of power that exists between employer and employee for 75 years.  In addition to our years of experience we also stay current on statues and case law related to our Practice Areas.  Visit our blog and news to see more case summaries.

*Compton v. Superior Court, Second Appellate Division, Case No. B236669 (March 19, 2013).  Summary by BT&B.

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