Alternative Dispute Resolution
Dec. 6, 2002
Court Considers Strictures on Arbitration
LOS ANGELES - The California Supreme Court wrestled Wednesday with whether to impose new restrictions on mandatory arbitration as a condition of employment.
Most of the justices' questions dealt with how to allocate costs between employee and employer and whether it is fair for the process to include a built-in appellate review.
Behind those issues loomed a larger question: Can the arbitration process be declared unconscionable and unenforceable if an employee complains that its provisions violate public policy but do not infringe on any statutory rights?
The centerpiece of the debate was the high court's decision that set minimum procedural standards to ensure fairness. Armendariz v. Health Psychcare Services Inc., 24 Cal.4th 83 (2000).
San Diego attorney Christopher Hoffman, representing the defendant in Wednesday's case, argued that the procedural safeguards in Armendariz apply only to arbitrations involving allegations of statutory wrongdoing, such as a claim for workplace discrimination under the state Fair Employment and Housing Act.
The plaintiff's attorney, Nelson Brestoff of Los Angeles, countered that the Armendariz standards apply any time there is unequal bargaining power between the employer and the employee, namely whenever the offer of employment depends on acceptance of all the terms of arbitration spelled out in a standard written agreement.
Chief Justice Ronald M. George seemed more sympathetic to the plaintiff's position while repeatedly seeking assurance that the court is not constrained by the U.S. Supreme Court's recent decision in Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000), which held that an arbitration agreement is not unenforceable simply because it does not mention costs and does not affirmatively protect a party from potentially steep arbitration costs.
Justice Ming W. Chin, on the other hand, seemed skeptical that the court could disregard Green Tree's holding. Chin and Justice Marvin Baxter both voiced concern that shifting the entire cost to the employer or designating the arbitrator to divvy costs at the end of the process would unfairly favor employees.
"It's going to influence employees to run up costs because they have the assurance of never having to pay," Baxter said.
Baxter also questioned whether the court has the power to alter cost allocation in light of the 50-50 split required in the arbitration ground rules enacted by the Legislature.
The court also grappled with whether to uphold an agreement that requires review of an arbitrator's decision by a second arbitrator, if either party is not satisfied with an award of more than $50,000.
Hoffman said the provision deters both sides from "malicious" appeals of small awards but gives them an equal opportunity to seek review when the stakes are higher.
Brestoff and amicus lawyer Cliff Palefsky of San Francisco argued that employees are more likely than employers to seek review. That makes it "very one-sided," said Palefsky, representing the California Employment Lawyers Association.
When Justice Joyce L. Kennard asked if the appellate review provision could be severed from an agreement that otherwise meets minimum fairness standards, Hoffman said it could be. Brestoff said it could not, because that would make the process fundamentally unfair.
The plaintiff, Alexander Little, signed three arbitration agreements while employed at Auto Stiegler Inc. as a car mechanic. The agreements provided that both parties agreed to submit disputes to arbitration and waive their rights to a jury trial.
Little complained he was demoted and later fired after he reported that some employees were engaging in warranty fraud.
He alleged tortious demotion and termination in violation of public policy. Auto Stiegler's motion to compel arbitration was denied by a trial judge, who found the agreement unconscionable. The 2nd District Court of Appeal in Los Angeles reversed.
The court is expected to rule in Little v. Auto Stiegler Inc., S101435, within 90 days.
Peter Blumberg
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