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ISSUE V. 9 |
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FEATURE OF THE MONTH |
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CEB
Profile of Mary Kay Kane Business Employment
Law 1 Employment
Law 2 Family
Law General Interest |
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ARCHIVE OF PAST ISSUES |
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TEST YOUR KNOWLEDGE |
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Employment Law 1 |
Use of Arbitration/Mediation Procedures to Resolve Employment Disputes in California
Everett F. Meiners, Parker Milliken Clark O'Hara & Samuelian, Los Angeles. Contributing author to Advising California Employers published by CEB.
Arbitration/Mediation Procedures
For those who have clients wishing to avoid protracted expensive employment related lawsuits, it is fundamental to have a valid and effective dispute resolution agreement with all employees. This article reviews the basic requirements for implementing such a procedure and highlights some of the essential provisions for creating an agreement that is enforceable in the courts. In addition, the inclusion of a mediation process in the dispute resolution agreement will further contribute to the early and economical resolution of employment disputes.
Foundation for Valid Arbitration Agreements
Anyone preparing an arbitration procedure must be familiar with the basic requirements set forth in the California Supreme Court cases of Armendariz and Auto Stiegler. (Armendariz v Foundation Health Psychcare Services, Inc. (2000) 24 C4th 83, 99 CR 2d 745), (Little v Auto Stiegler, Inc. (2002) 29 C4th 1064, 130 CR2d 892). These include: 1) a procedure to select a neutral arbitrator, 2) the right to conduct adequate discovery, 3) a requirement that the arbitrator issue a written opinion setting forth some reasoned basis for his decision, 4) a mutuality of obligation, i.e. the employer as well as the employee is required to use the arbitration procedure for their claims, 5) the right of the arbitrator to issue any award which a court could issue, 6) no limitation on the statute of limitations provided by law, 7) a procedure that will cost the employee no more than a lawsuit in the Superior Court, and, 8) if an appeal procedure is provided in the agreement, it must be fair and equally available, without limitation as to the size of the award necessary for an appeal, to both the employee and the company.
Right to Provide for Appeal
Some employers have objected to the arbitration procedure because the opinion is final, binding, and limited only to a very narrow review. A primary ground, under both federal and California law, for vacating an arbitration award is when the award is procured by corruption, fraud, undue means, or the arbitrators "exceeded their powers." (CCP § 1286.2; Federal Arbitration Act (9 USC § 10)). Thus, if an arbitrator issues an opinion which one of the parties believes to be based on improper conclusions as to the facts or law, under state and federal law there is very limited right for any further review of the arbitration decision. As a result, some arbitration clauses have been drafted to explicitly provide that the court has the right to review an arbitration award with respect to the merits and the applicable law. In the federal system, Prudential-Bache attempted to provide for federal court, review of an arbitration decision on grounds which were not specified by statute. However, as explained in an en banc decision in the case of Kyocera v Prudential-Bache Trade Services (9th Cir 2003) 341 F3d 987, federal courts cannot review an arbitration award except on the limited statutory grounds allowed by federal law. (Note: This case was reviewed in detail in the CEB Case 'n Point article entitled: Expanded Court Review of Arbitration Awards Rejected, Issue v 8).
Finley v Saturn of Roseville
Consequently, it is not uncommon to find arbitration procedures which include a provision allowing either party to have the initial arbitration decision reviewed by another arbitrator who has experience reviewing trial court decisions. In Finley v Saturn of Roseville (April 23, 2004, No. C043997), the court had occasion to review the enforceability of such a provision. This case arose out of an alleged wrongful termination and the arbitration agreement included the right of either party to seek review of the initial arbitration decision by a second arbitrator, within 10 days after the issuance of the initial award. After the matter was ordered by the superior court to be arbitrated, an initial arbitration decision was issued. When the losing party sought to invoke the appellate procedure, the other party declined to submit the issue to another arbitrator, contending that the time to seek appeal had expired.
One of the primary issues before the Finley court was whether the losing party seeking to appeal the decision could obtain a court decision compelling the other party to submit the merits of the first decision to the second arbitrator. Ultimately, the court concluded that the superior court did not have jurisdiction to determine if the time limits for the appeal had expired. The court held that the waiver issue had to be addressed to the arbitrator pursuant to the procedures in the underlying arbitration agreement.
The court concluded that once a matter is ordered to arbitration pursuant to an arbitration agreement, the procedure in the agreement governs the proceedings, including determining whether a party has waived its right to review by a second arbitrator.
The Finley Case Supports a Private Appellate Procedure
The Finley case re-assures employers that an enforceable private appellate review procedure can be properly inserted in an arbitration agreement and it will be enforceable, so long as it provides equal appeal rights for both the company and the employee. In reaching this conclusion, the court noted the public policy in favor of private arbitration procedures, and stated further that once the matter is referred to arbitration by a court, that the court has no further involvement in the merits of the case or the compliance with the contractual arbitration procedure. The court noted this policy by stating:
"In keeping with the policy of avoiding delays and unnecessary contact with the courts, once a matter has been referred to arbitration, the court's involvement is strictly limited until the arbitration is completed."
Because the appeal process is part of the arbitration procedure, the court will not reassume jurisdiction over a case referred to arbitration until the arbitration, including its appellate procedure, if any, is completed.
Inclusion of Mediation Procedure
The Finley case also has an effect on the use and enforceability of a mediation procedure included in an arbitration agreement. It is a natural conclusion from Finley and other cases that the inclusion of a mediation process would be an enforceable provision in a private arbitration agreement. Such a procedure is simply another contractual obligation the parties may select in order to resolve their disputes outside the court system. All litigants are now required by the superior court to attempt the resolution of their case through a court provided mediator, or by means of a privately selected mediator. Justification for such a requirement is supported by the fact that a significant percentage of all cases sent to mediation by the superior courts are resolved short of a trial. Such a beneficial procedure should also be available to private parties desiring to extricate themselves from the court system by opting for arbitration.
As stated by the court in Moncharsh v Heily & Blase (1992) 3 C4th 1, 32, 10 CR2d 183) it is the policy of the law "to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing."
This same policy applies to a mediation process set forth in an arbitration agreement which can be enforced by the arbitrator as part of the arbitration agreement.
Conclusion
These decisions show how arbitration agreements can be made enforceable under California law. Providing that the agreement includes the necessary provisions outlined by the courts in recent case law, employers should be able to use arbitration/mediation as an effective, quick, and inexpensive method of dispute resolution.
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