Q: WHILE applying for work at a company, I was asked to sign an “Arbitration Agreement.” I was told it’s part of the application. What exactly is an arbitration agreement? Is it good for me?
A: Arbitration is a procedure to resolve disputes without filing a complaint in court. The disputing parties refer the case to a third party (the arbitrator) who reviews it and makes a decision that is legally binding on both sides. By signing an employment arbitration agreement, the employee is agreeing to settle any claim against the employer before an arbitrator and not before a judge or a jury. This means the employee cannot file a lawsuit in court to resolve the claim.
Court proceedings are public, with the case being heard either by an impartial judge or an independent jury. An arbitration proceeding is a private process in which an arbitrator is hired by the parties to make a decision regarding the dispute. The process and its results are generally not disclosed to the public. The parties are bound by the arbitrator’s decision and the losing party cannot appeal.
Arbitration is most commonly used in commercial disputes, where the disputing parties are all business entities and have equal bargaining powers. The use of arbitration in employment disputes, may be problematic. Arbitration in an employment situation is not usually the product of negotiation but is practically imposed on the employee. The employee needs the job. The company will not give the job unless the employee agrees not to sue the company in court when disputes arise. Employees often automatically sign these types of agreements, without understanding the consequences.
While generally binding, courts may at times refuse to enforce them, as the following case illustrates:
Employees of two car wash companies, Lincoln Millennium Car Wash Inc. and Silver Wash Inc., signed employment agreements containing an arbitration clause, where they agreed to settle any employment-related dispute through arbitration. Part of the agreements were in Spanish and some parts were in English. Two employees who signed the agreements spoke very little English and they only signed the documents because they believed it was a requirement for being hired. They did not understand what arbitration meant. They did not believe they were giving up any rights.
They later sued the employers for wage violations. The employers moved to compel arbitration and take the case out of the hands of the court. The employees had to first sue the employers to be allowed to sue for their unpaid wages. This means the employees had to ask the court to declare that the arbitration agreement cannot be enforced.
After reviewing the facts, the trial court sided with the employees and ruled that the arbitration cannot be enforced because the arbitration agreement was “unconscionable.” An agreement is “unconscionable” if it is the product of oppression and surprise because one party has more power than the other party, or if its terms produce overly harsh and one-sided results.
The court found that the employees were forced to enter into the agreements when they did not completely understand them. The agreements did not benefit the parties equally, because the terms favored the employers more to the disadvantage of the employees.
The employers appealed the trial court’s ruling but lost. This means that the employees can go forward and file a lawsuit against their employers for their unpaid wages.
It is generally advantageous for employees to have access to the courthouse. Employees who are bound by arbitration agreements are deprived of their rights to have their day in court. Litigation in court gives employees an opportunity to have their claims decided by a jury of their peers, not by arbitrators, whose decisions may be affected by business considerations.
Just because an arbitration agreement is signed does not mean it can automatically be enforced. When faced with whether one should proceed to arbitration, one should consult with an experienced employment attorney.
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The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no-cost. Atty. Sayas’ Law Office is located at 500 N. Brand Blvd. Suite 980, Glendale, CA 91203. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com.
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C. Joe Sayas, Jr., Esq. is trial attorney who has obtained several million dollar recoveries for his clients against employers and insurance companies. He has been selected as a Super Lawyer by the Los Angeles Magazine, featured in the cover of Los Angeles Daily Journal’s Verdicts and Settlements, and is a member of the Million Dollar-Advocates Forum.