Mcle Self-study Arbitration: a Balancing Act

• Citation: Vol. 38 No. 2
• Publication year: 2024
• Author: Noah D. Lebowitz

MCLE SELF-STUDY ARBITRATION: A BALANCING ACT

AUTHOR^*

Noah D. Lebowitz

From its origins, the foundational concept of arbitration as an alternative to the traditional court system was rooted in the recognition that court proceedings tended to be lengthy, costly—and unnecessarily bogged down in formal rules and procedures. The original Federal Arbitration Act (FAA),¹ enacted in 1925, required courts to endorse consenting parties' binding contracts with provisions requiring that any future disputes between them would be resolved through this alternative venue.² The FAA, as well as the California Arbitration Act (CAA),³provide a basic framework in which parties can enter into enforceable contacts requiring an alternative dispute resolution forum in which traditional processes are streamlined, reduced, or eliminated—and the finality of outcomes is assured.⁴

However, adapting those original tenets into contemporary employment disputes involving unwaivable statutory rights has been a struggle. One example has been the push-pull dynamic between the desire for a streamlined, efficient process on the one hand, versus the need for adequate discovery on the other. This dynamic is magnified in employment arbitrations, which can present an imbalance in access to information and witnesses.⁵

The starting point here is the acknowledgment that arbitrations originating as a condition of employment are, and seemingly will continue to be, an ongoing reality—and attorneys on both sides of the equation benefit from thinking critically about the unique aspects of the process.

FOUNDATIONAL CONCEPTS

The fundamental aspect of employment arbitrations is that "a party does not forego the substantive rights afforded by the statute" forming the basis of a claim.⁶ But, at the same time, having even a statutory claim heard in arbitration means adopting the core tenets related to efficiency and streamlined procedures.⁷ That, of course, includes discovery.⁸ By agreeing to arbitrate, a party "trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration."⁹ However, "arbitration agreements that encompass unwaivable statutory rights must be subject to particular scrutiny."¹⁰

The Fair Employment and Housing Act (FEHA)¹¹ and California Labor Code provisions generally fall within the classification of unwaivable statutory rights, and California courts have held that "adequate discovery is indispensable for the vindication" of those claims.¹² Also, for such vindication to occur, the arbitration must meet certain minimum requirements, including adequate discovery.¹³ Claimants are "at least entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrators and subject to limited judicial review pursuant to California Code of Civil Procedure section 1286.2."¹⁴ There must be a balance between the desirable simplicity of arbitration with the statutory requirements in determining the appropriate discovery, "absent more specific statutory or contractual provisions."¹⁵

Taking a fresh perspective to the discovery process in arbitration—breaking from traditional mindsets and approaches used in court proceedings—can help achieve the dual goals of ensuring the ability to vindicate unwaivable statutory rights while achieving efficiencies not available in courts.

VACATUR

Another key tenet of arbitration is the finality of decisions.¹⁶ Arbitrators are keenly focused on making sure their final awards are not subject to a petition to vacate. The very limited circumstances in which a final award would be vulnerable are set forth in the FAA and CAA.¹⁷ One such circumstance is a demonstration that an arbitrator refused to hear material evidence.¹⁸

Arbitrators generally have broad discretion to base their awards on principles of equity and justice.¹⁹ Their decisions will not be reviewed for the validity of their reasoning, the sufficiency of the evidence supporting their award, or—generally speaking—for errors of fact or law.²⁰ However, that deference is restricted in no small measure when an employee's fundamental statutory or public policy rights are at stake. In those circumstances, the employee is entitled to seek the full protection of the applicable law, and the courts will exercise sufficiently searching review to ensure that the law has been correctly construed and applied.²¹ The California Supreme Court has recognized that heightened judicial review may be appropriate when "granting finality to an arbitrator's decision would be inconsistent with the protection of a party's statutory rights."²²

Arbitrators exceed their powers when their award "would be inconsistent with the protection of a party's statutory rights."²³ An arbitration award containing a legal error that amounts to preventing presentation of evidence in support of an unwaivable statutory right can be vacated as being in excess of the arbitrator's power.²⁴ In such cases, a court will review the arbitrator's award to ensure that the arbitrator complied with the requirements of the relevant statute.²⁵For instance, in Pearson Dental Supplies, Inc. v. Superior Court,²⁶ the California Supreme Court held the arbitrator misapplied a rule regarding the statute of limitations in a FEHA case. The arbitrator's grant of summary judgment based on that misapplication resulted in a denial of the claimant's right to present material evidence in support of an FEHA claim. The court there vacated the arbitrator's award in favor of the respondent.

WHICH RULES APPLY?

The rules of any particular arbitration proceeding primarily are a creature of contract. If an arbitration contract contemplates fulsome discovery via incorporation of the California Code of Civil Procedure or Federal Rules of Civil Procedure, then the arbitrator will enforce those rules to the extent not otherwise...