The Arbitration Conundrum: Practicalities and Alternatives to Consider Early

All of the feature articles in the September issue of the Contra Costa Lawyer relate to the fact pattern for this issue. Read it here. 

Assume that (1) Family Co. had an employment contract with Veronica containing a provision requiring arbitration of all disputes, and (2) she was told at the end of her FMLA leave that she must return to work immediately or she would be deemed to have resigned. For both Veronica and Family Co., that arbitration provision may pose a conundrum, with a series of practical tradeoffs to consider and choices to be made soon. Here are various issues and alternatives to consider all around, and early on.

Veronica’s Arbitration Issues

As experienced employment counsel know, the existence of an employment arbitration provision is often just the start of a number of conversations and possible quandaries, rather than a clear path forward. Depending upon whether the arbitration provision was clearly delineated, adequately explained (in all relevant languages), and separately executed, it may not be enforceable. See, e.g., Juarez v. Wash Depot Holdings, Inc., Cal. App. 5th (7/3/18; Civ. No. B282667) (Spanish version did not match English version that excluded PAGA claims from mandatory arbitration); Baxter v. Genworth North America Corp., (2017) 16 Cal. App. 5th 713 (arbitration agreement voided where employee required to sign as a condition of continuing employment); Carbajal v. CWPSC, (2016) 245 Cal. App. 4th 227, 245 (failure of arbitration provision to specify which ADR provider rules applicable invalidates mandatory arbitration requirement).

As well, even if clear on its face and knowingly executed, the arbitration provision may violate principles of substantive fairness under many California cases. See, e.g., Armendariz v. Foundation Health Psychcare Servs., Inc. (2000) 24 Cal. 4th 83, 110-11 (employer must pay for all arbitrator fees and administration fees; arbitration provision may not limit employee’s FEHA remedies); Carlson v. Home Team Pest Defense (arbitration provision barring employee from seeking injunctive relief unenforceable).

In turn, the enforceability of any arbitration provision may not be sorted out for some time, delaying resolution, particularly where the parties dispute the underlying facts. For example, did Veronica actually read and sign the arbitration provision – not just the overall agreement? Did she receive a copy of the referenced ADR provider’s arbitration rules? What was she told she would or would not be covered by the arbitration provision? While this all gets sorted out in court, Veronica’s work status remains unresolved, and the opportunity for repair and reinstatement may evaporate.

Family Co.’s Arbitration Issues

Concurrently, Family Co. should weigh the practicalities of its arbitration provision quickly. Even with an enforceable provision, Family Co. must quickly assess the costs and benefits of arbitrating any dispute. The fees and costs for qualified arbitrators – which must be borne solely by the employer — can run to tens of thousands of dollars, as it involves ongoing case management, discovery disputes, preparation for and conducting the arbitration hearing, and issuing a written decision. These costs are tripled when the arbitration provision calls for three arbitrators rather than one. As well, delays in moving to compel arbitration often lead to such motions being rejected.

In other words, invoking arbitration is often a costly decision that needs to be made quickly.

Other uncertainties about arbitration should also be considered.

While recent U.S. Supreme Court cases have upheld arbitration requirements in employment and other settings, the California Legislature may in 2018 – as they did in 2015 – bar mandatory arbitration of employment disputes.

Although Governor Jerry Brown vetoed the 2015 legislation, 2018 may see a different result, leaving more uncertainty for new and pending employment arbitrations.

Fortunately, faster, less costly and more certain alternatives exist for everyone. Here are two:

Renegotiate the Playing Field

If the arbitration provision has problematic aspects – say for example a failure to specify which underlying rules apply – chances are Family Co.’s counsel knows that as well. Rather than a court battle over its enforceability (which the Court may resolve to no one’s full satisfaction), the parties can negotiate a level playing field themselves.

Directly negotiating away onerous provisions is usually much quicker than awaiting a court decision, saving everyone time, money and opportunities.

Besides excising problematic terms, the parties can also tailor the arbitration to best fit the particular case. While adversaries may not immediately agree as to scope of discovery or other procedural steps, they can adopt one of various ADR provider rules that authorize the arbitrator to do so. Doing so typically enables the parties and arbitrator to scale the amount of work to the needs of the particular case – eliminating extremes on each end.

Mediate Before You Arbitrate

As described above, employers face significant expense – both counsel and arbitrator fees – if a matter is fully arbitrated. As well, while arbitrations are routinely faster toward resolution than court litigation, and the parties can select expedited procedures or ADR provider rules targeting faster resolution, everyone still faces delay and lost opportunities if the dispute is fully arbitrated. Here, consider mediating early on, for all of these core reasons:

• Both sides have obvious reasons to get the dispute behind them sooner. Here, Veronica could return to work under safe and reasonable conditions or move forward elsewhere, and Family Co. can save arbitration costs and achieve closure sooner as well.
• The work needed to adequately prepare to mediate is typically recyclable, meaning the same work is needed for a later arbitration hearing. Hence, nothing is lost by pulling it together sooner, ideally striking a deal that obviates the need for an arbitration hearing.
• Properly prepared and executed, early mediation allows everyone to realistically assess positions, evidence and tradeoffs before the dispute metastasizes to a point where lost opportunities, sunk costs and hardened positions only impede later settlement efforts.
• Finally, mediation allows everyone to explore solutions that neither a court nor an arbitrator can compel. With this multi-party dispute involving Veronica, her employer, her ex-husband and his employer, creative solutions could be explored via mediation.

As a former general counsel who created pre-dispute mediation programs for nearly all disputes – employment or otherwise, I bear witness to the fact that this approach works. While we periodically went to trial or arbitration, over 90% of cases resolved through pre-trial or pre-arbitration hearing mediation efforts. We learned things; they did too. Everyone was better informed, options were better measured, and disputes ended much sooner.

So, even if an arbitration provision surfaces, remember that it is only the start of several conversations about legalities, practical tradeoffs, and the value of time as well as money. Pick up the phone and start those conversations.