Insight

A Time for Choosing

Vast changes in the law, at both the federal and state level, have made it even harder to get through the already dense thickets of employment arbitration. What do businesses need to know going forward?

Suited man holding up falling walls with gray and yellow backdrop
BS

Brandon D. Saxon and Debra Ellwood Meppen

March 23, 2023 11:30 PM

ARBITRATION IN employment litigation has always, understandably, been a contentious process. Navigating and enforcing agreements has gotten increasingly complex due to changes in federal law and regulations, as well as at the state level around the country. Here’s an overview.

Limits on Arbitration Agreements

Before deciding whether to include an arbitration agreement in employees’ onboarding documents, businesses should be aware of their legal limitations.

Federal. In general employment disputes, arbitration agreements cannot be used to force arbitration of sexual harassment claims. Prior signed agreements, including class and collective actions, are not enforceable and have lost all validity since President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 into law in March 2022.

Meanwhile, the Forced Arbitration Injustice Repeal Act of 2022 (FAIR) was passed in the House (for the second time) in February 2021 and is headed to the Senate. The FAIR Act would “prohibit a pre-dispute arbitration agreement from being enforceable if it requires arbitration of an employment, consumer, antitrust or civil rights dispute.” The bill is expected to meet resistance in the Senate, with a majority of Senators having previously evinced a favorable attitude toward employers.

In the states. In California, the ban on mandatory arbitration agreements stemming from 2019’s Assembly Bill 51 has, since 2020, been bandied back and forth. Most recently, the Ninth Circuit on February 15, 2023 blocked enforcement of AB 51, finding that it’s preempted by the Federal Arbitration Act. As such, for now AB 51 has been enjoined, and employers can continue to condition employment on execution of an arbitration agreement.

These pacts’ utility has expanded, too, following a ruling by the First District of the California Court of Appeal in January of 2023. In Iyere v. Wise Auto Group, the plaintiff’s “I do not recall signing” defense was deemed invalid upon the prediction of a handwritten signature on an arbitration agreement, giving employers greater ability to enforce them.

In New York, employers are not permitted to make arbitration of discrimination-related claims mandatory. In New Jersey, there is a law that makes pre-dispute arbitration agreements essentially unenforceable; that law has been challenged by an assortment of business groups and is pending in federal court.

In the Pacific Northwest, lawmakers amended Washington state law in 2018 to prohibit employers from requiring the waiver of an employee’s right to publicly pursue a covered claim under the Washington State Law Against Discrimination (See Wash. Rev. Code 49.44.085). In 16 Illinois jurisdictions, by contrast, “all civil cases filed in which the amount of monetary damages being sought falls within the program’s jurisdictional limit are subject to the arbitration process,” according to a statute in place to limit the number of cases that extend into civil court, encouraging closer management and quicker resolution.

The Current Status of California Arbitration

Expanding upon changes to California’s Private Attorneys General Act (PAGA) arbitration practices, a U.S. Supreme Court ruling in Viking River Cruises, Inc. v. Moriana (2022) provided additional protection by allowing an arbitration agreement to be used to waive representative PAGA claims, enabling employees to pursue individual claims through arbitration and preemptively limiting potential civil penalties. Once a worker’s individual claim under PAGA is compelled to arbitration, he or she will not be able to bring a representative claim under PAGA.

In Iyere v. Wise Auto Group, the plaintiff’s “I do not recall signing” defense was deemed invalid upon the prediction of a handwritten signature on an arbitration agreement, giving employers greater ability to enforce them."

The crux of the high court’s ruling is that signing an arbitration agreement will not alter the employee’s rights. The agreement merely shifts the forum in which a claim can be heard. Further protections against the broad reach of PAGA have been introduced in California, too: The California Fair Pay and Employer Accountability Act is a proposed ballot initiative that seeks to substantially limit a private plaintiff’s ability to prosecute PAGA claims and seeks to repeal the current process that allows for the filing of frivolous claims. Lawsuits filed under PAGA have increased more than 1,000% since 2004, and approximately 4,000 PAGA notices have been filed with the state’s Labor and Workforce Development Agency (LWDA) nearly every year since 2014. The act is set to face the ballot in November 2024; if it passes, the mechanisms of PAGA would significantly reduce the private right of action and limit the breadth of PAGA claims.

Benefits and Costs

Arbitration agreements provide considerable protections—and come with some drawbacks as well. First, the benefits.

Time, speed and cost efficiency. Many find arbitration more time- and cost-effective than litigation. While the arbitrator’s fees must be taken into effect, litigation costs are typically much lower due to limited time (speed in) litigating, limited motion filing, limited discovery and limited time in proceedings.

Privacy and flexibility. In arbitration, the particulars of the dispute are not a matter of public record. The speed with which arbitration proceeds is due to its inherent flexibility. It moves forward based on the availability of all involved parties and a mediator, as opposed to the long, drawn-out schedule that’s a hallmark of a civil court.

Impartiality. All parties are involved in the selection of an arbitrator to ensure impartiality throughout the process.

“What’s done is done.” Unlike in a civil court dispute, in binding arbitration the ability to appeal is severely curtailed once a decision has been reached. The finality of an arbitration agreement, in tandem with the privacy the agreement provides, enables the employer to place the dispute firmly in the past, secure in the knowledge that there is no option to appeal it.

Despite these benefits, arbitration agreements have some drawbacks as well.

Perceived “fairness.” Should you select an arbitrator who ends up revealing an undetected bias, you risk diluting the neutrality of the process. In addition, its fairness could be questioned if arbitration is mandated by the contract. Because arbitration is confidential, some procedural transparency may be lost—and, worse, opposing counsel might not share with you certain evidence presented to the arbitrator.

Unpredictability. Arbitration can vary from the traditional approach seen in civil court. There may be instances when evidence considered in court is ignored during arbitration, and vice-versa. This nontraditional route may therefore result in nontraditional or unpredictable results.

“What’s done is done.” The finality of arbitration, while a benefit, also has the potential to be a detriment. You cannot appeal an unfavorable resolution.

Best Practices

Arbitration remains generally favored by courts and serves as an excellent option for employers. Having an enforceable agreement in place is the necessary first step. From there, while working with trusted counsel, employers should evaluate the specifics of each matter case by case to assess cost, risk and the organization’s goals and overall strategy to determine whether arbitration is the right choice. Please don’t hesitate to contact the authors for further guidance and recommendations.

Brandon Saxon is a partner and serves as Co-Chair of the National Employment practice group at Gordon Rees Scully Mansukhani LLP. His practice focuses on a wide range of civil litigation matters focusing on the defense of companies and employers in employment and commercial related actions. He has litigated a number of matters to successful resolution in both state and federal courts and has experience in a variety of heavily regulated practice areas.

Debra Ellwood Meppen is a litigation partner and the Gordon Rees Scully Mansukhani National Labor and Employment Law Practice Group Chair. She is a highly sought-after attorney for her expertise, negotiation abilities and discretion that she offers to celebrity, corporate and other clientele. She also leads the firm’s Women’s Initiative, developed to support and encourage female attorneys on leadership and professional growth.

Headline Image: iStock/ SvetaZi

Related Articles

Withstand the Ban


by Jeffrey A. Calabrese and Kirby Black

With the recent Federal Trade Commission’s announcement proposing a complete ban on noncompete agreements, we offer advice to companies moving forward.

Figure out of frame signing a non-descript contract

Brace for Impact


by Ray Young, Jr. and Scott Hetrick

The 2021 independent contractor rule might have major impacts on employers and upend compliance issues, especially as the DOL’s definition of an independent contractor is about to change.

Silhouetted figure holding the hands of a clock

Employers Are Budding Heads on Marijuana in the Workplace


by M. Tae Phillips and Melanie C. Cormier

As employment lawyers, we receive many questions from employers navigating marijuana legalization. Below, we answer the top three most asked questions.

Statue of Liberty holding a marijuana joint

Rights and Wrongs


by Shannon Pierce

Antidiscrimination enforcement agencies, both federal and state, are likely going to be highly active in the next five years. Are Nevada businesses ready?

Faces of women overlapping in multi-color

Whistleblower Legislation Opens the Doors for More International Claims


by Justin Smulison

An Anti-Money Laundering Act, part of a recently passed Omnibus Budget in the U.S. Senate, is expanding protection for whistleblowers both domestically and internationally.

Shadow figure in spotlight against red and blue brick wall

New York City To Clarify Employer Artificial Intelligence Laws


by Gregory Sirico

Best Lawyer weighs in on New York City's current legislative battle to clarify the extent of artificial intelligence laws in an employment setting.

AI worker stands in front of line of people

Strength in Numbers: When Partnering Up May Be Best in Whistleblower Litigation


by Justin Smulison

Whistleblower claims make headlines when they result in multimillion-dollar settlements. But the journey to the courtroom is characterized by complexity and requires time and resources. Bienert Katzman Littrell Williams partner and The Best Lawyers in America awardee Michael R. Williams discusses when and why partnerships between counsel will strengthen whistleblower litigation.

A Blue Person in the Middle of White People

Employment Alterations


by Ariel Beverly

As corporate America continues to grapple with pandemic-induced employment shifts, companies are still facing wage-hour compliance issues. Here’s some advice for navigating a post-pandemic work world.

Post-Pandemic Employment Difficulties

The Employment Pandemic


by Meredith Caiafa and Sarah Greene

The pandemic has had far-reaching effects on employment law since it officially took hold in 2020, but the litigation and lawmaking surrounding it are mutating faster than the variants. Here’s how lawmakers and businesses can keep up.

Employment Law During COVID-19

The Push and Pitfalls of New York’s Attempt to Expand Wrongful Death Recovery


by Elizabeth M. Midgley and V. Christopher Potenza

The New York State Legislature recently went about updating certain wrongful death provisions and how they can be carried out in the future. Here's the latest.

Red tape blocking off a section of street

Combating Nuclear Verdicts: Empirically Supported Strategies to Deflate the Effects of Anchoring Bias


by Sloan L. Abernathy

Sometimes a verdict can be the difference between amicability and nuclear level developments. But what is anchoring bias and how can strategy combat this?

Lawyer speaking in courtroom with crowd and judge in the foreground

Preventing Malpractice Issues in Pediatric Practice. A Lawyer's Perspective


by Sean M. Cleary

Despite medical breakthroughs and patient care, hospitals often act as a source of medical malpractice claims, leaving patients in dire need of legal counsel.

Sketch of doctor providing medical care to child

How Maine’s Yellow Flag Law Stacks up Against Other New England Gun Restrictions


by Gregory Sirico

New England states currently boast some of the lowest firearm mortality rates in the nation and world, but the state laws of the region vary quite drastically.

Silhouetted hand covering the barrel of a gun

Maximizing SEO: The Power of Online Directories for Law Firms


by Nancy Lippincott

By harnessing the power of online directories, law firms can boost SEO, strategically enhancing visibility and overall digital presence in the legal industry.

Unseen figure in suit pointing to world map

Why Backlinks Matter for Law Firm SEO


by Nancy Lippincott

The key ingredient to a law firm's online search visibility could lie within backlinks, a driving factor in the industry's efforts to build an SEO-based future.

Collection of search bars, menus and posts in front of gray background

The Critical Role of Content in Law Firm SEO Strategy


by Nancy Lippincott

From building trust to staying competitive with thought leadership, explore how SEO content creation establishes authority in a largely digital landscape.

Animated internet servers, charts and laptop connected to SEO label

Trending Articles

Presenting The Best Lawyers in Australia™ 2025


by Best Lawyers

Best Lawyers is proud to present The Best Lawyers in Australia for 2025, marking the 17th consecutive year of Best Lawyers awards in Australia.

Australia flag over outline of country

Best Lawyers Expands 2024 Brazilian Awards


by Best Lawyers

Best Lawyers is honored to announce the 14th edition of The Best Lawyers in Brazil™ and the first edition of Best Lawyers: Ones to Watch in Brazil™.

Image of Brazil city and water from sky

The Best Lawyers in Mexico Celebrates a Milestone Year


by Best Lawyers

Best Lawyers is excited to announce the 15th edition of The Best Lawyers in Mexico™ and the second edition of Best Lawyers: Ones to Watch in Mexico™ for 2024.

Sky view of Mexico city scape

How Palworld Is Testing the Limits of Nintendo’s Legal Power


by Gregory Sirico

Many are calling the new game Palworld “Pokémon GO with guns,” noting the games striking similarities. Experts speculate how Nintendo could take legal action.

Animated figures with guns stand on top of creatures

How To Find A Pro Bono Lawyer


by Best Lawyers

Best Lawyers dives into the vital role pro bono lawyers play in ensuring access to justice for all and the transformative impact they have on communities.

Hands joined around a table with phone, paper, pen and glasses

Announcing The Best Lawyers in New Zealand™ 2025 Awards


by Best Lawyers

Best Lawyers is announcing the 16th edition of The Best Lawyers in New Zealand for 2025, including individual Best Lawyers and "Lawyer of the Year" awards.

New Zealand flag over image of country outline

Presenting the 2024 Best Lawyers Family Law Legal Guide


by Best Lawyers

The 2024 Best Lawyers Family Law Legal Guide is now live and includes recognitions for all Best Lawyers family law awards. Read below and explore the legal guide.

Man entering home and hugging two children in doorway

Announcing The Best Lawyers in Japan™ 2025


by Best Lawyers

For a milestone 15th edition, Best Lawyers is proud to announce The Best Lawyers in Japan.

Japan flag over outline of country

The Best Lawyers in Singapore™ 2025 Edition


by Best Lawyers

For 2025, Best Lawyers presents the most esteemed awards for lawyers and law firms in Singapore.

Singapore flag over outline of country

Canada Makes First Foray Into AI Regulation


by Sara Collin

As Artificial Intelligence continues to rise in use and popularity, many countries are working to ensure proper regulation. Canada has just made its first foray into AI regulation.

People standing in front of large, green pixelated image of buildings

Commingling Assets


by Tamires M. Oliveira

Commingling alone does not automatically turn an otherwise immune asset into an asset subject to marital distribution as explained by one family law lawyer.

Toy house and figure of married couple standing on stacks of coins

How Much Is a Lawyer Consultation Fee?


by Best Lawyers

Best Lawyers breaks down the key differences between consultation and retainer fees when hiring an attorney, a crucial first step in the legal process.

Client consulting with lawyer wearing a suit

The Hague Convention and International Custody Battles


by Alexandra Goldstein

One family law lawyer explains how Joe Jonas and Sophie Turner’s celebrity divorce brings The Hague Convention treaty and international child custody battles into the spotlight.

Man and woman celebrities wearing black and standing for photo

Presenting the 2024 Best Lawyers Employment and Workers’ Compensation Legal Guide


by Best Lawyers

The 2024 Best Lawyers Employment and Workers' Compensation Legal Guide provides exclusive access to all Best Lawyers awards in related practice areas. Read below and explore the legal guide.

Illustration of several men and women in shades of orange and teal

New York Passes 9/11 Notice Act


by Gregory Sirico

Best Lawyers highlights the newly enacted 9/11 Notice Act, which seeks to find individuals eligible for medical care coverage under different federal programs.

Firefighter stands with their back turned with flames in the background

Filing For Divorce in North Carolina


by Melody J. King

Family law lawyer Melody King answers some of the most important questions individuals may have about filing for divorce in North Carolina.

Illustration of man and woman on paper that has been torn apart

This article is a part of the Best Lawyers Employment Law Legal Guide. Read thought leadership from recognized lawyers and navigate a list of all honorees in the associated practice areas.

Explore the Legal Guide