Arbitration Hearings Expected to Rise in Wake of Court Ruling

More than a quarter of California companies require employees to sign arbitration agreements, and that number is expected to grow in the wake of a state Supreme Court decision that sets strict rules for such contracts.

While the court decision created new protections for workers, employers said Friday that it also clarifies complex and sometimes conflicting rules that surround arbitration agreements.

“It’s a big bonus for employers,” said Larry J. Shapiro, an attorney and publisher of Tiburon, Calif.-based California Employee Advisor, a legal newsletter. “It’s given the green light to use [arbitration agreements] in California.”

Thursday’s court ruling also is expected to force many ongoing arbitration cases into court to work out compliance. The opinion, widely hailed as a boost for worker rights, said that arbitration agreements may not put limits on monetary awards, and that employees in search of evidence have the right to compel employers to turn over documents. The new rule also requires arbitrators to issue written opinions, and it forces employers to pick up the tab for arbitration.

“This is a wonderful and long-awaited decision, at least from the perspective of the employers, who are taking a progressive view of arbitration,” said Tom Makris, a Sacramento-based attorney with Pillsbury Madison & Sutro, who heads legislative affairs for the Northern California Human Resources Assn.

“This decision sets the ground rules and does it fairly,” he said. “From the employee perspective, I think it’s also a good decision. Arbitration is a quicker way to resolve disputes. The ruling gives employees full rights to all of the remedies they would have in court.”

Joseph Posner, an Encino lawyer who heads the Los Angeles chapter of the National Employment Lawyers Assn., said the ruling is an improvement for employees, but it doesn’t go far enough.

“It’s leveling the playing field a little bit,” he said. “But anybody going into arbitration still has to realize that your chances of getting a decent-sized award are better with a jury, assuming you prove liability.”

By requiring arbitrators to issue written opinions for limited judicial review, Posner said the state high court opened a new avenue for arbitration cases to get to court.

“The opinion doesn’t tell us what the scope of that review will be,” he said. “If either side or both think the opinion is wrong or ambiguous, they may have to go to court. And now the court is going to have to do what courts have not done before. . . . The court is going to have to get into the meat of the thing to straighten it out. Now they can get into the facts and the legal reasoning the arbitrator uses.”

Posner said employees should look at arbitration agreements they have signed to see whether the agreements comply with the ruling. He also encouraged employees to consult a lawyer before signing any new agreements proposed by employers attempting to comply with the new rules.

Disputes in arbitration under the old rules may have to backtrack or even go to court if the parties cannot agree to proceed under the new rules, Posner said.

Shapiro, the employer newsletter publisher, said arbitration agreements had been challenged in courts across the state for years. The resulting inconsistent rulings made it difficult for large employers who straddled jurisdictional lines to draft compliant agreements. The high court ruling should make enforcement of the agreements easier for employers by clearing up the most contentious of the disputes surrounding them, he said.

“One of them really had to do with who was to bear the burden of the cost. The other was some agreements had been written to limit remedies, and the court said you can’t do that,” Shapiro said. “The court made it a much more level playing field.”

Shapiro’s newsletter found in a survey issued this month that the use of arbitration agreements already is widespread. Of 538 employers surveyed, 27% said they required employees to agree to arbitration in lieu of a jury trial. That is up 10% in the last year, he said.

Although the new opinion reconciled the patchwork of state court decisions, the federal courts are still wrestling with arbitration agreements. In 1998, the U.S. 9th Circuit Court of Appeals, which includes California, ruled against mandatory arbitration in an employment discrimination case, although other circuits have upheld them, said Sacramento lawyer Makris.

The U.S. Supreme Court is expected to take up mandatory arbitration agreements in a separate case, and many employers are operating on the assumption that mandatory arbitration agreements will eventually be upheld there, he said.

Lisa Girion covers the workplace for The Times. She can be reached at lisa.girion@latimes.com.