Q. To hold down litigation costs and resolve disputes faster, we're thinking about requiring employees to sign arbitration agreements that would make them arbitrate employment disputes instead of going to court. Are these agreements legal? —C.R., California
A. Arbitration agreements are legal in California as long as the process provides certain safeguards. While many experts think that arbitration agreements are a good idea for the reasons you cited—expediting the process and keeping costs down—you may want to delay your plans until the effects of a recent California Supreme Court decision are fully considered.
In August, the court said an arbitration agreement was unfair because it did not require the employer to arbitrate its claims against the employees, and it limited the remedies available. (Armendariz v. Foundation Health Psychare Services Inc., No. S075942) For an arbitration agreement to be enforceable, the court said, it must, among other things, allow for discovery, require the employer to pay all costs associated with arbitration and allow for a written decision outlining the arbitrator's findings and conclusions.
Readers from other states should also consider the standards outlined in this decision for their own arbitration agreements. Courts in other jurisdictions often look to California decisions for guidance, and you may find yourself subject to similar requirements.