May 15, 2003 General Employment Issues

Ninth Circuit Court of Appeals Remains Resistant to Arbitrating Employment Disputes

For years, courts have debated the enforceability of written agreements to arbitrate employment disputes. In its landmark 2001 decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the U.S. Supreme Court concluded that the Federal Arbitration Act (9 U.S.C. § 1) permits employers to require employees to arbitrate work-related disputes. In so doing, the Court reversed the U.S. Court of Appeals for the Ninth Circuit (which includes California and eight other Western states), which was then the only federal appeals court to refuse to enforce agreements to arbitrate employment discrimination claims. Thereafter, in EEOC v. LuceForwardHamilton, & Scripps, 303 F.3d 994 (9th Cir. 2002), the Ninth Circuit seemed to be joining the rest of the federal courts by finding that such agreements are enforceable so long as they comply “with the principles of traditional contract law, including the doctrine of unconscionability.” See The Evolution of Arbitration in Employment Agreements ( Dec 31, 2002 ). The Ninth Circuit is scheduled to review that decision later this year.

In the meantime, in Ingle v. Circuit City Stores (9th Cir. May 13, 2003), the court ruled that, because arbitration is a more favorable forum for employers, there is a rebuttable presumption that mandatory workplace arbitration is substantively unconscionable (i.e., so unfairly favorable to the employer as to be unenforceable as a matter of contract law) . The opinion states:

We do not here utter a blanket rule outlawing arbitration agreements in the employment context. Rather, consistent with California law, we find the coverage of such arbitration agreements typically and grossly one-sided, and therefore, presumptively substantively unconscionable.

Interestingly, this interpretation of California law is at odds with numerous California state court decisions, which have considered the enforceability of various arbitration agreements without even hinting at a presumption of unconscionability. See California Supreme Court Provides Guidance on Mandatory Employment Arbitration Agreements ( Aug 29, 2000 ). Moreover, other than saying that the “employer [must] demonstrate that the effect of a contract to arbitrate is bilateral . . . with respect to a particular employee,” the opinion offers no guidance as to how employers can overcome this presumption.

Clearly, this decision is not the last word on the issue of workplace arbitration in California . In addition to further litigation, there have been legislative attacks on the process in recent years (see Proposed California Legislation Would Restrict Arbitration of Employment-Related Disputes ( June 27, 2002 )), and more are expected. Until the issue is resolved, employers in California and other western states again find themselves in a difficult position. Their ability to require arbitration of employment-related claims is not only uncertain but may depend on what court the plaintiff selects as the forum in which to pursue his or her claims.