By: Partner David Nusz

As the Clash cautioned us in 1982, if we leave there could be trouble and if stay there could be double. For those of you too young to remember 1982 I recommend checking out the song which includes additional lyrics apropos to the daunting task of employment law compliance in CA, and it frequently feels like the CA Courts and Legislature are happy when we’re on our knees. Just when we think we have it figured out, they pull the rug out from under us with new legislation or judicial interpretations of old legislation. Compliance can seem like a constantly moving target. One area of the law which has been exceptionally fluid in recent years has been Employment Arbitration Agreements (EAA’s). In large part this has been the result of a protracted tug of war between the CA and US Supreme Courts over multiple issues related to these agreements, including whether employers can make them a mandatory condition of employment, what can and can’t be included, factors that may impact their enforceability based on conscionability considerations, and how much time an employer has to attempt to enforce the EAA if an employee attempts to sue them in Court for covered claims. Some of the back and forth between the CA and Federal Courts was specific to the issue of whether PAGA could be included in an EAA, and if so, to what extent.

For the foreseeable future, those EAA questions have been resolved by the Courts so barring major changes in the makeup of the Supreme Courts. We finally have some level of predictability which should alleviate the need to constantly change our EAA’s to keep up with the legal changes. If you have not reviewed and/or updated your EAA’s in the last year, I would encourage you to do so to ensure they take full advantage of every potential legal benefit available under existing law. If I, or other experienced legal counsel recently updated your EAA, it is likely current. In either event, in my view there is no downside to having all employees sign EAA’s, so you retain the option to try and enforce them or not when faced with a legal claim covered in the agreement. While the choice to have EAA’s should be an easy one, the choice to use them in litigation to avoid Court is more nuanced and may depend on a variety of factors specific to the case.

First, a brief overview of the current law in CA regarding EAA’s:

1. The US Supreme Court rejected the CA Legislature’s effort to make it illegal for employers to insist on an employee’s agreement to sign a EAA as a condition of employment. While they agreed there may be circumstances that make an individual EAA unenforceable generally Arbitration Agreements should be favored by Courts in any context, including employment and it is generally governed by Federal law. Therefore, we now know we can use them and insist on them as a mandatory condition of employment.
2. Class Waivers can be included meaning if the EAA is otherwise enforceable, if it includes a Class Waiver, the employee can’t initiate or participate in a Class Action. If for no other reason, this is why all employers should have EAA’s.
3. Under Federal and CA law Sexual Harassment and/or Battery, as well as any claims that are directly derivative of those causes of action can’t be compelled to arbitration. A recent Court of Appeals decision confirmed claims other than sexual harassment which are included in the same case can’t be compelled to arbitration.
4. An employer can require a Plaintiff to litigate their Individual PAGA Claims in arbitration, but the same Plaintiff has the right to litigate their Representative PAGA Claims in Court.

Typically, arbitration is viewed as a more user-friendly forum for employers to resolve employee legal disputes than the Courts. The assumption is arbitration will be confidential, quicker, cheaper, and an arbitrator will likely be more sympathetic to a Defendant employer than a jury. Generally, arbitration results are not a matter of public record, which is a legitimate consideration for many employers. Disputes also usually resolve faster in arbitration than a Court trial. However, they can be more expensive. Unlike the Courts which are theoretically available to the public and funded by all taxpayers, arbitration is paid for by the employer, which is one of the mandatory conditions for an EAA to be enforceable. Most arbitrators that handle employment cases charge between $1,000.00 – $2,000.00 an hour for their time, which not only includes the actual arbitration but all the hearings and conferences with the parties leading up to it. Therefore, for a case that will take 7 days to arbitrate, the employer should expect to pay at least $100,000.00 just to the arbitrator, win or lose. In addition, how a jury is likely to view an employer Defendant depends a lot on what Court system (County) you are in and what the nature of the claims are.

So, back to original dilemma described by The Clash, stay or go? if you have a strong EAA signed by an employee who sues you in Court anyway, should you stay in Court or attempt to enforce the EAA and go to arbitration? Like most attorneys confronted with what seems to be a straightforward client question, I default to “it depends” as my response. If you have a signed EAA, as the Defendant you will likely have the choice. If there4 has ever been a Plaintiff trying to enforce an EAA, I am unaware. If the Court case is a Class Action only, I don’t think there is any real option other than asking the Court to enforce the EAA and the Class Waiver which it contains. Then the potential Class Action dies for that Plaintiff and they are required to go to arbitration on individual claims only. If it is an individual Plaintiff case for discrimination, wrongful termination, etc., I believe it depends on a lot of case specific factors including venue where case was filed, nature of claims and available defenses, and the Defendant’s litigation budget.

Until recently, I believe the decision was challenging if the case included PAGA. Because an employer can require an employee to litigate Individual PAGA Claims in arbitration while not being able to avoid the Court for the Representative PAGA Claims, this can require an employer to litigate the same case in two different forums. While the representative claims are typically stayed by the Court until the arbitration is concluded as long as the Plaintiff could establish they had suffered a single Labor Code violation in arbitration, they then had standing as the PAGA “Aggrieved Employee” to return to Court and pursue any and all categories of Labor Code violations on behalf of the State whether those claims impacted that employee or not. Until recently PAGA allowed an employee who experienced a single Meal Period violation only to also pursue statutory penalties for any/all Rest Period, Wage Statement, Business Expense Reimbursements, Overtime, Minimum Wage, etc. for all the other employees. There is rarely good news for me to report with respect to the legal landscape but as many of you are probably already aware, there has been a recent reform of the PAGA law with changes that benefit employers. While we still have PAGA to deal with and still can’t compel the Representative Claims to arbitration, for those PAGA claims initiated on/after July 1, 2024, an employee now only has legal standing to pursue those categories of Representative PAGA Claims which directly impacted them. In other words, if the Plaintiff can only prove in arbitration that they suffered a Meal Period violation they are then limited to pursuing alleged representative Meal Period violations in Court afterwards which significantly changes the playing field, both for potential settlement leverage for Defendants but also litigation strategy.

Bottom line, a strong EAA can be a great litigation deterrent and shut down any potential Class Actions, so a must have in my opinion. Whether to use it in a live litigation situation depends on a variety of individual case factors you should consider and discuss with legal counsel as those situations arise.