March 2015

Legal Update: California Court of Appeal Upholds Mandatory Arbitration of Employment Claims


The California Court of Appeal, First Appellate District, in a decision filed on March 16, 2015, upheld the enforcement of an employer’s mandatory arbitration agreement, rejecting arguments of procedural and substantive unconscionability, and affirming the discretionary right of the trial court to sever an attorneys’ fee provision in order to ensure that the agreement afforded rights provided to the employee under the Fair Employment and Housing Act.  The name of the case is Serafin v. Balco Properties Ltd., LLC.

How this issue came about:  Plaintiff, Madeline Serafin, sued her former employer for wrongful termination, harassment and defamation.  The employer moved to stay the litigation until the completion of binding arbitration based on an arbitration agreement Serafin signed when she was hired.  The arbitrator ultimately found in the employer’s favor on all issues and the trial court granted the employer’s petition to confirm the arbitration award, entering judgment in the employer’s favor.  The employee appealed, arguing that she had never agreed to binding arbitration and even if she did, the arbitration agreement was unenforceable because it was procedurally and substantively unconscionable.

The Court of Appeal rejected Serafin’s contention that there was no valid agreement to arbitrate.  The arbitration agreement was not buried in an employee handbook, but rather was set out “in its own two-page, easy-to-read document, separate from any other document that Serafin was required to execute as part of her employment.”  The employer’s practice was to have its Human Resources department representative explain the contents of its policies and procedures, including the arbitration policy, to all employees during orientation. The Court also rejected Serafin’s argument that the agreement was unconscionable because it did not attach a copy of the rules of the American Arbitration Association, even though the agreement applied the rules of that organization to any dispute arbitrated under the arbitration agreement.  The agreement expressly informed Serafin that she could obtain a copy of the rules from the Human Resources Department or directly from the American Arbitration Association.

Finally, the Court found that the arbitration agreement’s requirement that each party bear their own attorney fees and costs was properly severed by the trial court in an exercise of the court’s discretion because the agreement could not properly deny Serafin her opportunity to seek in arbitration all statutory remedies provided for under the Fair Employment and Housing Act, including an award of attorney fees, should Serafin prevail on her FEHA claims.

What this means for you and your business:  Agreements requiring employees to submit any disputes with their employer regarding their employment, including termination, to final and binding arbitration, may be an appropriate way for employers to contain the costs and publicity associated with court actions.  In order to ensure the enforceability of such agreements, employers should make sure that the contents of the agreement are substantively fair to the employee, that the agreement is separate from any employee handbook or policy and procedure manual, and that the process through which the employee is asked to sign the agreement allows the employee to raise questions about the arbitration agreement.  Small missteps in the process of creating and implementing mandatory arbitration agreements may result in a court refusing to enforce the agreement.

Want to know more?  Contact Wendy Tice-Wallner at 415-733-3976 or email her.