Arbitration Clauses Upheld in State Court

A California appeals court, approving a controversial employer practice, has ruled that companies can force their workers to accept arbitration in labor disputes and give up the right to sue their employers.

Tuesday’s decision by the 2nd District Court of Appeal in Los Angeles means that employers can refuse to hire--or may even fire--workers who refuse to sign an arbitration agreement covering future disputes.

The closely watched case involved a legal secretary who was fired by two separate law firms after he refused to sign mandatory arbitration agreements.

Legal experts say the ruling is the first state opinion to answer whether companies can require job applicants and current employees to give up their right to public court trials as a condition of employment.

The ruling strengthens the hand of employers, although other courts have taken a position against mandatory arbitration. Moreover, legal experts are divided over whether California companies now face any boundaries in limiting employees’ right to sue in court. Tuesday’s ruling is likely to be appealed to the California Supreme Court.

During the last decade, many employers have been presenting prospective and current employees with a take-it-or-leave-it proposition, touting mandatory arbitration as a cheaper, speedier way to resolve labor disputes.

Arbitration agreements have also gained widespread popularity beyond the workplace. Banks, real estate firms and even hospitals are among the entities requiring consumers to give up their right to sue.

Some employers routinely demand that new hires take all their workplace disputes--sexual harassment, racial discrimination and wrongful termination--to private arbitrators, who are usually retired judges. Other employers craft narrower arbitration clauses, limited to pay or disciplinary disputes, mainly because some federal courts have frowned on mandatory arbitration.

Employer groups on Tuesday called the appeals court opinion a major victory.

“This is a great decision because it [gives the green light] to another system that is not as costly or time consuming as the court system,” said Jeffrey A. Berman, an attorney for the Employers’ Group, which represents some of the state’s largest employers.

The American Civil Liberties Union and employees’ attorneys decried the state court ruling, saying it would likely be overturned by the California Supreme Court.

“Employees are now in the dangerous position of being told to waive your rights to a trial by jury if the employer simply demands it . . . or be fired,” said David S. Schwartz, an ACLU attorney who represented the fired legal secretary.

“If courts can tell employers they can avoid going to court, it’s a major shift in the balance of power between employers and employees,” said Schwartz, who now teaches employment law at the University of Wisconsin.

Cliff Palefsky, a prominent San Francisco employment attorney, called the decision “a throwback.”

“Under the California Constitution, the right to a jury [trial] is inviolate,” Palefsky said. “It’s outrageous to suggest that you could terminate an employee who refuses to waive a fundamental constitutional right.”

The practice has drawn the attention of the state Legislature, where Speaker Antonio Villaraigosa (D-Los Angeles) is sponsoring a bill to prohibit companies from requiring new employees to give up their right to have disputes resolved in the courts. Employers who violate the law and require employees to sign such mandatory arbitration agreements could be fined $5,000 under the legislation, which has passed the Assembly and is now being considered in the Senate.

Mandatory arbitration has suffered setbacks in other court tests.

Last year, the U.S. 9th Circuit Court of Appeals ruled that employers could not force workers to “choose between their jobs and their civil rights.”

That case involved Tonyja Duffield, who sued her stockbroker-employer in 1995, seven years after signing a standard industry form requiring arbitration of all disputes.

When the U.S. Supreme Court refused to hear the Duffield case, keeping her suit alive, civil rights attorneys interpreted it as a victory against compulsory arbitration. The justices also ruled in separate cases that workers generally have a right to go to court to sue their employers for discrimination.

Tuesday’s California opinion came in a case involving Donald Lagatree, who was a legal secretary at Keesal, Young & Logan in Long Beach and San Diego-based Luce, Forward, Hamilton & Scripps.

Lagatree said that the first time he refused to surrender his legal rights was in June 1997. His bosses at Keesal, Young had asked him to sign a binding arbitration agreement that would take labor disputes to a panel of three retired judges. When he refused, he was terminated.

Four months later, Lagatree suffered the same fate when he rejected an arbitration agreement handed to him by partners at Luce, Forward, He had been on the job there just three days.

Lagatree contacted ACLU attorneys, who filed wrongful-termination claims against both law firms. Both lawsuits were eventually thrown out of court.

In its 36-page opinion on Tuesday, the appeals court said his firings did not violate California public policy.

“We think it plain that under state and federal law, an employee’s rights to a jury trial and a [public court] can be validly waived by agreement, even where the waiver is required as a condition of employment,” wrote Justice William A. Masterson.