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Draft arbitration agreement to limit litigation

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in Employment Law,Human Resources

Using arbitration agreements can save time and money by keeping cases out of the court system. But if the agreement isn’t drafted well, the end result may be more litigation rather than less.

That can happen when a disgruntled employee decides to challenge in court the legality of the arbitration clause she signed.

But lately, California courts have ruled that a well-drafted arbitration agreement can bind both employer and employees to its terms—especially if it includes a so-called delegation clause that gives the arbitrator sole discretion to interpret the agreement.

Recent case: Lourdes worked as a cook at Lucky Chances, a card-club casino and restaurant. Three years later, Lourdes was asked to sign an arbitration agreement, which she did.

The agreement included a provision, referred to as the “delegation clause.” It stated that an arbitrator, not the courts, “shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or any part of this Agreement is void or voidable.”

Five years later, Lourdes was discharged. She sued for wrongful termination.

Lucky Chances filed a petition to compel arbitration. A Cali­­for­­nia appellate court concluded that the trial court did not have the authority to decide the enforceability of the agreement.

The court noted that for a delegation clause to be effective it must meet two requirements:

1)  the language of the delegation clause must be clear and un­­mistakable, and

2)  the delegation must not be revocable under state-law grounds of fraud, duress or unconscionability.

The court held that the language was clear and an arbitrator would need to decide whether the agreement was enforceable. (Tiri v. Lucky Chances, No. A136675, Court of Appeals of Cali­­for­­nia, 1st District, 2014)

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