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GPSolo eReport

GPSolo eReport July 2024

Arbitration and Employment Law: Trends to Watch

Daniel Yousefzadeh

Summary

  • Lawyers should keep an eye out for one specific topic in employment law this year: arbitration.
  • In California, many employers who compel employees to litigate matters against them in arbitration are now confronting the employee protections afforded in California’s Code of Civil Procedure Section 1281.98.
  • Lawyers from across the country should examine California’s methodologies to guarantee equitable treatment of employees, as California is often a legal bellwether.
Arbitration and Employment Law: Trends to Watch
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Employment law, like a chameleon, possesses the remarkable ability to adapt to the ever-changing landscape of the contemporary workforce. As the nature of workplaces undergoes transformation, so, too, do the legal standards that regulate the dynamics between employers and employees. This is especially true in California, where employment law is heavily regulated. In navigating this ever-changing landscape, lawyers should keep an eye out for one specific topic this year: arbitration.

Lawyers nationwide have the opportunity to glean significant insights from the legal framework of California, which frequently acts as an indicator of forthcoming legal trends. Indeed, California’s comprehensive labor and employment legislation establishes stringent benchmarks for the protection of workers. This encompasses regulations pertaining to wage and hour issues, statutes against discrimination, and policies concerning family leave. Lawyers from across the country may examine California’s methodologies to guarantee equitable treatment of employees and champion the cause for similar protections in other jurisdictions.

The Benefits of Arbitration Agreements for Employers

Arbitration agreements are of paramount importance in the realm of employment litigation. They present a multitude of benefits for employers, such as the facilitation of swift dispute resolution, a reduction in associated costs, and enhanced confidentiality in comparison to conventional court proceedings. The absence of a public court record in arbitration guarantees the confidentiality of the process. Employers frequently perceive arbitration as a more economical alternative to jury trials, as it sidesteps the financial burdens associated with extended court proceedings. Furthermore, the Federal Arbitration Act underscores the enforceability of arbitration agreements, highlighting a federal policy that is in favor of arbitration.

Protections for Employees under California’s Code of Civil Procedure

However, in California, many employers who compel employees to litigate matters against them in arbitration are falling victim to a fairly novel law. According to California’s Code of Civil Procedure:

In an employment or consumer arbitration that requires . . . the drafting party pay certain fees and costs during the pendency of an arbitration proceeding, if the fees or costs required to continue the arbitration proceeding are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration as a result of the material breach.

Once the arbitration agreement is materially breached, the employee may unilaterally elect to “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.” To withdraw the claim from arbitration, the arbitration provider must have supplied the parties with an invoice “sent to all parties by the same means on the same day,” setting forth the “full amount owed and the date that payment is due.” The deadline remains the same unless an extension of time is “agreed upon by all parties.”

As indicated by the plain language of the Code, “the triggering event is nothing more than nonpayment of fees within the 30-day period.” Importantly, “[i]f such fees are not received by the conclusion of the statutory grace period, an employee may immediately elect to pursue options for relief.” Furthermore, “employees . . . may make their ‘unilateral’ election under section 1281.98, subdivision (b) upon learning of the default, without first seeking approval from the arbitrator.”

Additionally, “[a]pplying section 1281.98’s material breach provision in a straightforward fashion . . . is [also] consistent with the statute’s legislative purpose.” In regard to the passage of California Code of Civil Procedure § 1281.98, “[o]ne of the Legislature’s main objectives was to deter employers from strategically withholding payment of arbitration fees so that they could no longer stymie the ability of employees to assert their legal rights. To do this, the Legislature established [that] . . . [a]ny untimely payment consisted a material breach regardless of the circumstances. . . .” As “‘[e]mployees . . . were facing either the complete denial of any relief or delays in obtaining relief by virtue of the perverse incentive companies and businesses had to push claims into arbitration and then to refuse to pay . . . the Legislature reasoned, no breach was immaterial to the stranded employee or consumer.’” Consistent with the legislature’s intent to curb the harmful practice of employers that fail to pay required arbitration fees, which inevitably results in hindering the “‘effective resolution of disputes’” and the contravening of public policy, the legislature sought to provide employees “‘with a clear means to redress their harms’” caused by such employers. Importantly, providing employees with such an avenue to pursue their legal rights is “‘[p]articularly [important] in employment matters, [where] the plaintiff’s livelihood may be the subject of the adjudication.’”

California as Bellwether

California’s legal landscape acts as a bellwether, signaling what other states might face in the future. By studying its laws, policies, and legal battles, lawyers nationwide can proactively prepare for shifts in their own jurisdictions. Accordingly, you are well advised to take a lesson from California’s Code of Civil Procedure § 128.198 in one way or another.

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