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Arbitration agreement may not be bulletproof

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in Employment Law,Human Resources

Bad news for employers that hope arbitration agreements might limit the cost and time required to resolve employment disputes: A federal court has concluded that if an employee brings numerous claims, including a so-called Private Attorneys General Act (PAGA) claim for violations of the California Labor Code, then the court may split the proceedings.

One set of claims can go to arbitration while the other goes to court.

As a practical matter, that may mean two sets of attorneys’ fees and costs, as well as time consuming litigation.

Recent case: When Tammy was hired, she was handed a packet of forms to fill out, including an arbitration agreement that she signed. It said all employment disputes must go to arbitration rather than state or federal court.

A dispute developed and Tammy filed a whistleblower retaliation claim and a wrongful discharge charge. She also accused the company of violating the California Labor Code.

The employer challenged the lawsuit and argued for arbitration. Tammy argued the agreement was unconscionable and unfair on multiple grounds. She also said the California Supreme Court forbade waiving rights under the Labor Code, allowing employees to bring them under the PAGA in state or federal court.

The court concluded that though flawed, the arbitration agreement was valid and sent most of Tammy’s claims to arbitration. However, it maintained jurisdiction over the Labor Code claims, effectively splitting the litigation into two separate forums. (Jacovides v. Future Foam, No. 2:16-CV-01842, CD CA, 2016)

Final note: The National Labor Relations Board has also been pushing to review such agreements, striking clauses that prevent class or collective actions. Now may be a good time to review your arbitration agreements.

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