When Are Forced Employment Arbitration Agreements Invalid in California?

When an employee begins a new job, their employer will likely require them to sign an arbitration agreement. Should a dispute arise between the employee and employer, the agreement will require the parties to resolve their dispute through an arbitrator rather than a court. Too often, arbitration agreements give employers an unfair advantage by stipulating that the employer can select the arbitrator, who may be biased in the employer’s favor. However, several state and federal laws limit the enforcement of arbitration agreements under certain scenarios. Recently, a California Court of Appeals decision applied federal law to invalidate an employer’s attempt to compel arbitration in a sexual harassment suit.

This case arose when the employer hired the plaintiff as the Chief Financial Officer. Two years into his employment, the Chief Medical Officer began sexually harassing and assaulting the plaintiff. The Chief Medical Officer threatened to fire the plaintiff if he complained, so the plaintiff told no one. The plaintiff then signed an agreement to resolve employment disputes with a specific arbitrator. After the agreement took effect, the Chief Medical Officer continued harassing and assaulting the plaintiff, and the Chief Executive Officer allegedly retaliated against him for complaining. During this time, Congress enacted the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“the Act”), which invalidated certain “predispute” arbitration agreements. The plaintiff then filed a complaint with alleging sexual harassment, discrimination, and retaliation, among other claims.

The employer filed a motion to compel arbitration, arguing that the Act did not apply because the plaintiff’s claims accrued prior to the Act’s effective date, and the arbitration agreement was signed after the alleged harassment and assault occurred. Therefore, the employer argued that the agreement did not meet the definition of “predispute” under the Act. The trial court initially granted the motion but later reversed. The employer appealed.

The Court of Appeals affirmed the trial court’s decision, rejecting the employer’s arguments. First, the court found that the arbitration agreement constituted a “predispute” agreement, meaning the Act applied. It reasoned that a “dispute” refers not to the incident of harassment but rather the employee’s assertion of a right, claim, or demand and an employer’s disagreement or adversarial response to the harassment allegation. In other words, a “dispute” does not arise without disagreement between the parties. Because the dispute occurred after the plaintiff signed the arbitration agreement, the Act invalidated the agreement.

Additionally, the court found no evidence that a dispute existed between the parties before the arbitration agreement. To the contrary, the Chief Medical Officer allegedly threatened to fire the plaintiff if he told anyone about the harassment. The court found this to imply that the Chief Medical Officer did not dispute the conduct, instead agreeing that the conduct was sexual harassment and assault. Moreover, the plaintiff never complained before signing the agreement, meaning he did not initiate a dispute at that time. Therefore, the court affirmed the trial court’s conclusion that the Act applies because the arbitration agreement took effect prior to the dispute, making it a “predispute” agreement.

Do you Have Questions About Your Employer’s Questionable Actions?

Under certain circumstances, arbitration agreements can make it harder for employees to seek redress. If you have questions about arbitration agreements, contact the California employment lawyers at Hardin Law Group to understand your legal rights.