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Attorneys

Recent Developments Warrant Review of Arbitration Agreements

February 22, 2012

An employer’s ability to have disputes with employees resolved by arbitrators instead of courts had some ups and downs in recent days. One of those developments suggests that employers should review and perhaps revise their arbitration agreements to keep them enforceable in state court. The other development indicates that arbitration agreements will continue to be treated favorably by federal courts.

In particular, the California Court of Appeal published yet another opinion last week diminishing the ability of employers to enforce arbitration agreements with their employees. On the other hand, the U.S. Supreme Court this week decided yet another case striking down a state law that impairs enforcement of arbitration contracts.

It is widely believed that, all other things being equal, an arbitrator would be less likely than a court to conclude that an arbitration agreement is invalid. Accordingly, many employers prefer to have an arbitrator (instead of a court) decide whether such a contract is valid. However, California’s First Appellate District issued a decision on February 16, 2012, in a case called Ajamian v. CantorCO2e, L.P., indicating that such ambitions are not always easy for employers to obtain.

The appellate court noted that a broadly worded provision in an employer’s arbitration contracts gave “arbitrators the power to decide the validity of [those] arbitration agreements.” Nonetheless, the court said the provision “did not provide clear and unmistakable evidence that the parties intended to delegate authority to the arbitrator, rather than to the court.” As fate would have it, the court went on to find the agreement unenforceable and declined to order the employee to arbitrate the dispute.

A few days later, on February 21, 2012, the U.S. Supreme Court unanimously overturned a West Virginia law that rendered “unenforceable all predispute arbitration agreements that apply to claims alleging personal injury or wrongful death against nursing homes.” In a case called Marmet Health Care Center, Inc. v. Brown, the nation’s highest court reiterated that any state’s “categorical rule prohibiting arbitration of a particular type of claim” is invalid because it runs afoul of federal law.

This much remains certain: California may not adopt a law banning or specifically impairing the arbitration of employment disputes, but care must be taken to ensure that arbitrators can resolve disputes concerning the enforceability of an arbitration agreement. Thus, employers are well advised to confer with counsel to determine if an arbitration contract is desirable.

Where an employer determines that such an agreement is appropriate, legal counsel can provide guidance in terms of what provisions should be included to enhance the enforceability of such a contract. Legal counsel also can help to identify provisions in an employer’s existing arbitration agreements that should be discarded to achieve that goal.