By Nicolas Orihuela
Imagine if a private individual, paid by the wealthier or well-connected party in a dispute, got to decide if the government had the right to curtail your free speech, or if an employer could terminate you because of your religious beliefs, or if the police had the right to abuse your fellow citizens, would you want this system of justice? Of course not — the deck would be stacked against you at the start.
That’s what happens to employees who are forced to sign an arbitration agreement, which is that buried clause in the employment contract that requires all employment disputes to be resolved through arbitration as opposed to the traditional civil justice system. In a recent study concerning employment arbitrations before the American Arbitration Association, one of the largest arbitration service providers in the country, the win rate of employees was a meager 21.4% (compared to a win rate of 36.4% in federal court and a win rate of 59% in California state court). That same study revealed that in arbitration employees tend to obtain smaller awards compared to employees who prevail in jury trials. Also, as the paying customer of these arbitrators, employers tend to improve their win rates in arbitration by using the same arbitration service provider multiple times (known as the “repeat player” effect). Under one analysis, the win rate among employees drops from 23.4% to 12.0% when there is a repeat employer-arbitrator pairing.
In today’s world where arbitration agreements are becoming ubiquitous, getting a job now often means signing away your Seventh Amendment right to a jury trial. The founders of our country, who knew this right was vitally important to a democratic republic, wrote it into the original Bill of Rights, along with the right to freedom of speech, the right to bear arms, and the right to an attorney in a criminal case. The Seventh Amendment was no accident. The right to have your peers sit in judgment of your civil case was considered indispensable to a functional democracy and a powerful check on the government and the well-connected.
In the courts, employees are not going down without a fight. Many battle their employers for the right to be heard in civil court. But victory is not assured.. The question of whether the courts will respect the Seventh Amendment or side with employers’ one-sided agreements is still undecided. The question may soon come to a head in the California Supreme Court.
Recently, the California Supreme Court granted review in two cases that exemplify what is wrong with arbitration agreements forced upon employees. In Leos v. Darden Restaurants, Inc., a female employee was subjected to workplace sex harassment. When she filed a complaint in civil court, the employer argued that an arbitration agreement forced upon her at the beginning of her employment required her to submit her claims to arbitration. As is typical of many, it favored the employer, who retained the right to amend or modify the agreement at any time, placed barriers on the employee’s ability to obtain information essential to reveal evidence of wrongdoing, and exempted arbitration claims that only the employer could pursue against the employee. While the Court of Appeal agreed that the arbitration agreement was unfairly forced upon the employee, it still concluded that the employer was entitled to enforce it. If this is not unfair, then what is?
Leos is to be decided together with Baltazar v. Foreover 21, Inc., a sexual and racial harassment case involving a similar forced arbitration agreement: The employee was told, “sign it, or no job.” As in Leos, the agreement covered only claims that an employee is likely to bring (e.g., discrimination claims, wage and hour claims, etc.).
Both Leos and Baltazar represent the typical scenario that employees face on the first day of a new job. These court of appeal rulings represent a troubling trend towards overlooking the real world disparities in power that produce unfair arbitration agreements. While both courts agreed that the agreements were unfairly forced upon the employee, they still held that they were enforceable contracts.
In both cases what is at stake is much larger than contract interpretation and defenses to contract formation. What is at stake is preserving employees’ Seventh Amendment right to a jury trial and preventing the unfair and biased process of forced arbitration.
It’s now up to the California Supreme Court finally to say what is obvious — forced arbitration agreements are an abuse of power that violate employees’ constitutional rights — and to act accordingly, by refusing to enforce them.
Nicolas Orihuela is a founding partner of the employment law firm of Hurwitz, Orihuela & Hayes, LLP and has been practicing since 2002. He represents employees in race discrimination, sex harassment, wrongful termination and disability discrimination related cases. He also handles wage and hour cases.