Arbitration Agreement Dos and Don’ts

We recently posted a summary of Peng v. First Republic Bank, a case discussing the validity of an arbitration agreement contained in an employment contract.  Peng is favorable for employers because the court there held that the compulsory arbitration agreement at issue was neither procedurally nor substantively unconscionable.

Peng addressed the narrow question of whether an employer may incorporate AAA rules by reference into an arbitration agreement without attaching the specific rules to the agreement. The court further held that an agreement’s unilateral modification provision was not per se unconscionable, so long as the employer exercised its rights in good faith.

As an employer, you may have questions about the validity of your particular arbitration agreement and whether it would survive a legal challenge. Printed below are several common arbitration agreement “dos and don’ts” taken from recent California cases to serve as a preliminary guide. We hope you find these helpful.

A compulsory arbitration agreement must:

1. Provide for neutral arbitrators;
2. Provide for more than minimal discovery;
3. Require a written award;
4. Provide for all types of relief that would otherwise be available in court.

A compulsory arbitration agreement may not:

1. Require employees to pay either unreasonable costs or arbitrators’ fees or expenses as a condition of access to the arbitration forum;
2. Impose arbitration on the employee but not the employer. Beware of language such as “[e]mployees shall not have the right to raise any claim other than by arbitration” or “[e]mployees agrees to make a written request for arbitration within one year of when the dispute arises.” Such phrases have been held to be unreasonably one-sided, especially when the employer is allowed the full range of forums for pursuing claims against the employee.
3. Establish time limits for an employee to respond to communications regarding the arbitration proceedings or forfeit his or her claim;
4. Reference but fail to attach Better Business Bureau arbitration rules that preclude the consumer from obtaining damages. This is viewed as an element of unfair surprise indicating procedural unconscionability.

The above list is not all-inclusive and is intended only as a starting point. Barger & Wolen attorneys are available to discuss further questions you may have.