Annual Update of Alternative Dispute Resolution Cases
| Publication year | 2016 |
| Author | Paul J. Dubow |
Paul J. Dubow
Paul Dubow is an arbitrator and mediator in San Francisco. He specializes in employment, insurance, franchise, financial, and other commercial law matters. He is a past president of the California Dispute Resolution Council, a fellow of the College of Commercial Arbitrators, and a founder and past president of The Mediation Society of San Francisco.
The cases discussed below are those issued by California courts and federal courts that have jurisdiction over California. These cases may be of interest to attorneys drafting contracts containing arbitration or mediation clauses.
The issue in this case was whether the dispute in controversy was arbitrable. The dispute involved two sophisticated parties, who presumably jointly negotiated the contract. The plaintiff appealed from an order compelling arbitration, arguing that the court should have applied California law and, had it done so, it would have found the dispute to be non-arbitrable. The Ninth Circuit affirmed. The employment agreement did not clearly and unmistakably indicate that California's law of arbitrability should apply, because it stated only that "any controversy or claim...shall be settled by binding arbitration;" that, in the event of arbitration, "the parties shall retain the rights of all discovery provided pursuant to the California Code of Civil Procedure;" and referred to "[a]ll rights, causes of action, remedies and defenses available under California law and equity.as though in a court of law." While the employment agreement was clear that California's procedural rules, rights, and remedies applied during arbitration, it said nothing about whether California's law governed the question of whether certain disputes were to be submitted to arbitration in the first place.
Comment: In this case, arbitrability was decided in accordance with federal law, i.e., the Federal Arbitration Act ("FAA"). Indeed, the FAA is the default statute where the contract involves interstate commerce. There may be times, however, when the parties would prefer that California law apply. It may be enough just to state that the law of California applies to the contract, but it is even better to state that "the law of California, including its arbitration law" applies. In that situation, the court will hold that California law not only applies to the dispute once arbitration commences, but also will apply if there is a dispute over arbitrability. Care should be taken, however, before deciding to choose California arbitration law as the arbitration law of the contract. This is because class action waivers are not enforceable under the California Arbitration Act, and wage and hour claims must be litigated where the FAA does not apply.
In this case, the court declined to enforce the defendant's Dispute Resolution Program ("DRP") referenced in the employment agreement between the parties because it was unconscionable. The DRP was procedurally unconscionable because the plaintiff was required to sign the employment agreement as a condition of employment, but the DRP was not presented to her at the time of signing. It was substantively unconscionable because: 1) it exempted from the arbitration injunction proceedings commenced by the defendant to enforce the anticompetitive and confidentiality provisions in the employment agreement, but did not exempt the types of suits normally instituted by employees; 2) it required that the employee, but not defendant, file a "Request for Dispute Resolution" as a precondition to commence arbitration, and any claims by the employee not included in this initial request were waived and barred from any subsequent arbitration; 3) after the employee submitted the Request for Dispute Resolution, he or she was required to submit to an unspecified form of alternative dispute resolution before demanding arbitration, during which the employee was forbidden from being represented by legal counsel; 4) the employee, but not the defendant, was required to file his or her Demand for Arbitration within ninety days after the pre-arbitration process was completed; and 5) the agreement required the employee to pay a $120 arbitration filing fee, after which all fees and expenses incurred in connection with the arbitration were to be split between the parties.
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Comment: The defendant in this matter spent time and money preparing a thirteen page Dispute Resolution Program only to have it declared unenforceable because it overreached. There was no need for the one-sided injunction provision. California Code of Civil Procedure section 1281.4 permits a party bound by an arbitration agreement to file an injunction in court pending conclusion of the arbitration. If the defendant was concerned about an employee breaching a confidentiality or anticompetitive provision in the agreement, it could have filed suit in superior court to enjoin the employee's activities and then arbitrated the underlying dispute. With respect to the pre-arbitration provision, although a proceeding wherein an employer and employee can iron out disputes before litigation may be a laudable mechanism, the procedure used in this case consistently will be held to be unconscionable.1 The better procedure would be one that encourages, but does not require, employees to bring their concerns to the Human Relations Department before filing suit. With respect to employees sharing the cost of the arbitration, the California Supreme Court has held that an adhesive employment contract that requires employees to pay any part of the costs of arbitration in excess of the court filing fee is unconscionable.2 Finally, it should be noted that in order to find a contract unconscionable, the contract must be both procedurally and substantively unconscionable. While all adhesion contracts are procedurally unconscionable, a contract will pass muster if there are no substantively unconscionable provisions. In addition, a sliding scale between procedural and substantive unconscionability is used by the...
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