Arbitration is a common method for resolving employment disputes in California, offering a private and potentially less adversarial alternative to litigation. In arbitration, a neutral third party, the arbitrator, hears evidence and arguments from both sides before rendering a binding or non-binding decision. While arbitration can be beneficial due to its speed, cost-effectiveness and confidentiality, it also limits employees’ rights, particularly when it comes to mandatory arbitration agreements.

California employers can now include mandatory arbitration clauses in employment contracts, thanks to a 2024 federal court decision permanently enjoining state officials from enforcing a state law restricting the practice. Businesses can require arbitration clauses in employment agreements that are governed by the Federal Arbitration Act (FAA), which includes most such agreements. However, the enforceability of such clauses is subject to scrutiny under state law. 

The California Supreme Court has established several requirements for mandatory arbitration clauses in employment agreements to be enforceable. Arbitration agreements must not be unconscionable. They must be fair, balanced, and not overly one-sided in favor of the employer. While arbitration can be mandatory as a condition of employment, employees must have a meaningful opportunity to understand and agree to the terms. Coercion or ambiguity in the agreement can render it unenforceable. The agreement must explicitly specify the disputes it covers. 

Most but not all employment disputes can be resolved through arbitration. Certain types of claims, particularly those involving public policy, may be deemed non-arbitrable. For instance:

• Class action waivers — While employers often include class action waivers in arbitration agreements, the California Supreme Court has limited their enforceability in wage-and-hour disputes.

• Criminal allegations — Claims involving criminal conduct generally cannot be arbitrated.

• Whistleblower claims — Under specific statutes, certain whistleblower claims may not be subject to arbitration.

Courts will closely analyze the scope of arbitration agreements to determine if specific claims fall within their terms. In addition, the employee must be made fully aware of the agreement’s terms prior to signing. 

In employment arbitration, the choice of arbitrator is critical, as their decisions may be binding and non-appealable. The arbitration agreement often specifies the criteria and process for arbitrator selection. It may state that the arbitrator should come from a list provided by an arbitration organization, such as the American Arbitration Association (AAA) or JAMS (Judicial Arbitration and Mediation Services). 

The arbitrator must be unbiased and have no conflicts of interest with either party. The arbitrator should have relevant experience in employment law and the type of issues involved in the dispute, and should have a record of fair and impartial decisions. 

Quinn & Kronlund LLP in Stockton provides effective arbitration forums for a wide range of legal matters throughout northern California. Feel free to contact us online or call 209-943-3950 to learn more about our services.