Forced to Arbitrate? Judicial Trends Say No.


Let’s face it; employer mandated arbitration clauses are the enemy in most employment law cases.  When you sign an employment agreement, or sometimes when you are given an employee handbook and told to sign an acknowledgment that you accept its terms, you are often agreeing to submit claims against your employer to arbitration, rather than litigation.

Arbitration decisions are generally binding on the parties and unless you can show the arbitrator severely mishandled your case, you will never see the inside of a courtroom.  In addition, most arbitrators are solely in the business of providing arbitration services.  Generally, arbitration agreements allow for the employer to choose an ‘arbitration association’ from which an arbitrator will be chosen for your specific case.

These arbitrators are often far more employer friendly, as they know that they have a better chance of repeat business from a large employer than they do with an employee.  There are even cases of arbitrators being black balled by large companies for finding in favor of employees in substantial cases.

But the evil of arbitration clauses has not gone unnoticed by the courts.  In a recent unpublished opinion by the 6th Circuit Court of Appeals, in USA ex rel. Paige v BAE Systems Technology Solutions , the justices decided that a claim for retaliation due to whistleblowing activity by the plaintiffs, arising under the Federal False Claims Act (FCA), did not fall under the signed arbitration agreement that the employees had signed when they took their jobs.

The plaintiffs in the underlying case were both employed by government contractors on projects for the United States Army.  The contracts totaled between $30-35 million.  During the bidding process the pair of employees became aware of fraudulent activity in the bids and later noted false certifications in time sheets related to those contracts.  They filed complaints with their employer but were told to participate in the fraud and to keep quiet.

They were further told to report to the very person about whom they have been complaining, which naturally led to no corrections of the fraudulent activity.  Instead they were told to keep future complaints in-house and were forbidden from making reports to the ethics department, human relations or to government investigators.

Rather that remain silent, they reported the behavior to outside agencies, in retaliation for which the employer placed one employee on ‘administrative leave’ for a year, and when he returned was given minimal duties, harassed, denied transfer and reassigned to a less desirable position.  He was eventually constructively discharged.

The other employee was passed over for promotion, given only limited assignments, and was eventually laid off.  They sued and the district court hearing the case dismissed it pursuant to a motion to dismiss filed by the employer stating that the claims were subject to a mandatory arbitration clause.  Both employees appealed.

The arbitration clause in question wasn’t denied by the employees, and contained language stating that it applied to ‘any dispute arising from’ the agreement, which the court interpreted as ‘any dispute, which arises under the terms of this Agreement.

Because arbitration clauses are solely a matter of contract between the parties the court was held to the language which was provided and had to look at it in the context in which it was accepted.

In doing so, the court concluded that this particular arbitration clause did not apply to the facts at hand.  The claim filed by the employees arose via statutory authority, not from the terms of employment.  The claims filed by the employees did not contain any language alleging breach of contract, and in fact, would have existed even if no employment agreement had ever been entered into.  The court added that the fact that the FCA retaliation statute contains the phrase “terms and conditions of employment,” as argued by the employer, did not mean the statute somehow was limited to instances involving the breach of an employment agreement addressing “terms and conditions” of employment.  In this case, the employees never argued that the “terms and conditions” of their employment agreement were violated; rather, they claimed retaliation due to their participation in statutorily protected conduct that was not the subject of the employment agreement.


While the above mentioned case is not controlling in California courts, it is persuasive, especially given the spate of recent cases issued here in our own state.

The California Court of Appeals (2nd District) ruled that arbitration clauses in two separate cases were unconscionable.  Cases against JP Morgan Chase Bank NA and Vista Del Mar Child and Family Services both arose from arbitration agreements signed by employees at the outset of their employment.

The case against JPMorgan was brought by Dixie Jara, who was hired as an assistant manager by Washington Mutual in 2001.  When Jara was hired, she signed a two-page arbitration agreement in which she agreed to arbitrate all employment disputes with Washington Mutual or its successor.  Washington Mutual was acquired by JPMorgan in 2008.  JPMorgan fired Jara in 2010.  Jara filed a complaint against JPMorgan alleging discrimination, harassment and wrongful termination, and JPMorgan moved to compel arbitration base on the agreement.  The district court rejected JPMorgan’s motion as substantively and procedurally unconscionable.

The Second District agreed, finding that a) the agreement had not been signed by the bank, and it therefore was procedurally unconscionable because it lacked mutuality; and b) it was substantively unconscionable in that it limited the number of depositions permitted and did not require the employer to bear the burden of the costs unique to arbitration.

In the case against Vista Del Mar Child and Family Services, former employee Perry Sparks filed suit claiming that he was terminated in retaliation for complaining about company practices that he alleged were in violation federal and state reporting and compensation laws.  When Sparks was hired, he signed an acknowledgement receiving that he received and read an employee handbook.   That handbook contained a mandatory arbitration clause.  Vista Del Mar moved to compel arbitration based on the arbitration clause.

The Second District, however, ruled that in order for it to determine that an employee was relinquished his right to assert an employment claim in court, there must be more than “a boilerplate arbitration clause buried in a lengthy employee handbook given to new employees.”  Accordingly, finding that Vista Del Mar’s arbitration clause was also substantively and procedurally unconscionable, it affirmed the lower court’s decision not to compel arbitration.

While these cases were factually distinct, they do offer hope that California courts recognize the inherent unfairness of employer mandated arbitration clauses.  Given the bias most arbitrators show towards employers and the high cost of arbitration for employees, these cases seem to indicate that we are moving in the right direction.

If you have signed an arbitration agreement with your employer that may affect an employment law case you would like to bring, contact the Law Offices of Stephen Danz & Associates at (877) 789-9707 or use the Contact Form on our website to request a free consultation today.  Stephen Danz has more than 30 years of employment law experience and defends only employees, never representing employers or big businesses.  Your case will be safe in his hands.