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How not to institute an arbitration clause

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In light of recent California appellate court decisions addressing the enforceability of arbitration agreements, many employers may consider having employees sign one of these contracts.

First, consider the following case a study in how not to introduce arbitration into the workplace, even if that workplace happens to be a law firm.

Recent case: Jacquelin Davis was a paralegal for O’Melveny & Myers. The law firm adopted a dispute-resolution program with final and binding arbitration of most employment-related claims. The announcement said continuing to work for the firm meant that employees agreed to the terms.

Davis sued, alleging she hadn’t been paid for working during lunch and rest periods and for working more than
40 hours per week. She also asked the court to declare the arbitration clause unconscionable and unenforceable under California law.

The 9th Circuit Court of Appeals, interpreting California law, concluded the agreement was invalid because it required employees to give up rights established by the California Labor Code as well as the federal Fair Labor Standards Act. The court also took issue with a confidentiality clause in the agreement, which purported to prevent employees from even filing a complaint with the U.S. Labor Department. (Davis v. O’Melveny & Myers, No. 04-56039, 9th Cir., 2007)

Final note: See “In the Spotlight” on page 6 for more on arbitration agreements.

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