24 Jun New Employee Arbitration Decision Carries Lesson For Employers

Legal Insights: Lessons from Carbajal v. CWPSC, Inc. on Employee Arbitration Agreements

The recent decision of the California Court of Appeal in Carbajal v. CWPSC_ Inc. (4th Dist. Feb. 26, 2016) G050438 has several lessons for the employer in terms of drafting and enforcing employee arbitration agreements.  The defendant was a house painting service that hired college students to sell the service and manage it.

The court ruled that the arbitration agreement was procedurally unconscionable for failing to specify the AAA Rules that would apply to the arbitration and substantively unconscionable for providing certain forms of relief to the employer only and waiving attorneys’ fees. The court affirmed the trial court’s denial of the employer’s motion to compel arbitration.

In a final blow, the court also rejected the employer’s argument that the Federal Arbitration Act (the “FAA”) applied. Application of the FAA would have preempted California law which is far friendlier to employees in terms of enforcing arbitration clauses. In so ruling, the court noted that the arbitration agreement itself did not select the FAA.

Mandatory employee arbitration agreements are not necessarily appropriate for every employer. Make sure the arbitration agreement provides the same remedies to employer and employee. Finally, federal law is generally more favorable to the employer than state law in terms of enforcing arbitration agreements.  As such, specify that the FAA applies to the enforcement of the agreement to arbitrate.

Fernald & Zaffos is a trial litigation boutique with offices in Los Angeles and Las Vegas. In addition to litigating labor and employment disputes, Fernald & Zaffos attorneys routinely consult on human resources matters for employers and are often called upon to audit existing arbitration agreements and employee handbooks in order to ensure compliance with California and Federal law.