From: Miles Locker
Sent: Tuesday, February 19, 2002 4:56 PM
Subject: FW: Legal Question Regarding Arbitration Agreements
It is possible that you misunderstood the information given by what you describe as "the local DIR office." DIR--the Department of Industrial Relations--is made up of several divisions, including the Division of Labor Standards Enforcement ("DLSE," also known as the Office of the State Labor Commissioner). In answering this question, I will assume you are referring to DLSE, as we are the agency that adjudicates wage claims filed by employees against employers.
You state that your company's arbitration "agreement" meets the requirements of Armendariz v. Foundation Health Psychcare Services, Inc. Whether or not that is true, is, of course, a legal question that can only be answered by the courts. Suffice it to say that I have seen a number of arbitration "agreements" which courts have held to be unconscionable and therefore unenforceable, despite employer assertions that those "agreements" met the requirements of Armendariz.
DLSE's position with regard to compulsory arbitration "agreements" is very simple---under state law, all employees have the right to have their wage claims heard and decided by the Labor Commissioner. If an employer wishes to use an arbitration "agreement" to prevent an employee from having his or her wage claim processed by the Labor Commissioner, that employer is welcome to file a petition to compel arbitration with the appropriate superior court. DLSE will not decline to act on a wage claim where the dispute is purportedly covered by an arbitration "agreement" absent a court order granting a petition to compel arbitration. Thus, DLSE will not halt proceedings on a wage claim in response to an employer's assertion that the claim is covered by an arbitration "agreement."
Moreover, as a general matter, in cases where we believe the arbitration "agreement" does not cover the wage dispute, or does not meet the standards enunciated in Armendariz, or where the papers in support of the petition to compel arbitration fail to establish the facts necessary to trigger FAA preemption, or where we believe the employer has waived the right to arbitrate, DLSE will intervene in opposition to the petition to compel arbitration. In the one year following the US Supreme Court's decision in Circuit City v. Adams (holding that arbitration "agreements" that are part of an employment agreement are covered by the Federal Arbitration Act, except for agreements related to employees engaged in transporting goods or persons across state lines), DLSE has been successful in the majority of cases in which we intervened to oppose petitions to compel arbitration.
With the recent US Supreme Court decision in EEOC v. Waffle House (holding that an arbitration "agreement" between an employer and employee does not preclude a government agency with independent enforcement powers from maintaining a court action against an employer for "victim-specific" remedies), DLSE will not hesitate to use its investigative and prosecutorial authority under Labor Code section 98.3 to file lawsuits against employers for wages and penalties owed to workers who may be unable to file such actions in their own names. DLSE, like the EEOC, is not bound by any arbitration "agreements."
Finally, you ask whether the California district court of appeal decision in Lagatree v. Luce, Forward, Hamilton & Scripps, still stands. In that case, decided in September 1999 (eleven months prior to the state Supreme Court decision in Armenddariz), the court of appeal held that a worker who has no dispute pending can be fired (and an applicant can be denied employment) for refusing to sign an arbitration "agreement." (This explains why I put quotations around the word "agreement.") The plaintiff, Lagatree, argued that his discharge violated public policy because he was required, as a condition of employment, to sign an arbitration "agreement" which he contended was unenforceable. Looking at Lagatree's "agreement" in light of Armendariz, it seems that the "agreement" that he was required to sign would now likely be found to be unenforceable. But the state of the law in 1999 when Lagatree was decided, not to speak of 1997, when Lagatree was fired for not signing the "agreement," was very different from the state of the law post-Armendariz. In holding that Lagatree's discharge did not violate public policy, the court of appeal explained: "Of course, the question before us is not whether a particular provision in the . . . arbitration agreement would be enforceable today. Rather, the question is whether [the employer] violated a public policy that was not only 'fundamental' and 'substantial' but also 'well established' at the time of Lagatree's discharge." 74 Cal.App.4th 1105, 1131.
Thus, Lagatree stands for the still valid proposition that a compulsory predispute arbitration "agreement" is not rendered unenforceable just because it is required as a condition of employment or offered on a 'take it or leave it' basis. Although such "agreements" constitute contracts of adhesion, and they are not necessarily unenforceable as such. But Armendariz teaches us that if, in addition to such procedural unconscionability, the "agreement" is also substantively unconscionable, the"agreement" could be found to be unenforceable. Armendariz held that in order to be enforceable, an arbitration "agreement" must meet all of the following minimum substantive requirements: 1) it must provide for neutral arbitrators, 2) it must provide for adequate discovery, 3) it must require a written arbitration award, 4) it must provide for all types of relief that would otherwise be available in court, and 5) it cannot require employees to pay any arbitrator's fees or expenses or any other unreasonable costs as a condition of access to arbitration. 6) it cannot impose non-mutual obligations under which the employee is obligated to arbitrate disputes but the employer is free to pursue judicial remedies.
Applying Armendariz to Lagatree, we would therefore conclude that under the present state of the law, an employer cannot discharge an employee (or refuse to hire an applicant) for refusing to sign a compulsory predispute arbitration "agreement" that fails the substantive Armendariz requirements so as to be unenforceable. On the other hand, an employer could lawfully discharge an employee (or refuse to hire an applicant) for refusing to sign an arbitration "agreement" that, in fact, meets the Armendariz requirements. Of course, the question of the continuing viability of Lagatree post-Armendariz will undoubtedly be decided by the California courts--we are unaware of any published decisions directly on point.
Finally, you should be aware that a federal district court held, in EEOC v. Luce, Forward, Hamilton & Scripps, that the very same employer whose predispute arbitration "agreement" had been upheld by the state court of appeal in Lagatree, was violating Title VII of the federal Civil Rights Act by requiring its employees to sign this predispute arbitration "agreement", and the employer was enjoined from requiring or requesting its employees to agree to arbitrate their Title VII claims as a condition of employment, and from attempting to enforce any previously executed "agreements" to arbitrate Title VII claims.
Sent: Thursday, February 14, 2002 4:51 PM
To: DLSE Info
Subject: FW: Legal Question Regarding Arbitration Agreements
please respond and cc me. Thanks!
From: Vernon Yawn [mailto:email@example.com]
Sent: Wednesday, February 13, 2002 4:29 PM
Subject: Legal Question Regarding Arbitration Agreements
I am an HR Director and am implementing an Arbitration Agreement in our company. The Arbitration Agreement meets the criteria set forth in Armendariz V. Foundation Health Psychcare Services, Inc. . One of our employees contacted the local DIR office and was told that Arbitration Agreements are unenforceable in claims brought before DIR. When I called the DIR representative the advice was confirmed. As we spoke the DIR representative was unaware of the March 21, 2001 US Supreme Court ruling in the Circuit City v. Adams case.
Question : Is it the position of DIR that arbitration agreements that meet the criteria set forth for employment arbitration agreements in the Armendariz case are not enforceable?
Question : Can employees file complaints with DIR and not be compelled to arbitrate if they have signed an agreement?
Question: If employers adopt an arbitration agreement and a current employee (without a dispute in process) refuses to sign the agreement does the Lagatree v. Luce, Forward, Hamilton & Scripps California Appellate Court ruling still stand?
Please respond at your earliest convenience, as we have already introduced this policy and are considering what action to take should current employee's refuse to sign the arbitration agreement.