Arbitration Gets Even Worse for California Employees

Author(s): Micheal Shah
Synopsis: Cable Connection, Inc. v. DirectTV, Inc. Cable Connection will have impact on all arbitration in California. Unfortunately, there is no indication that the Court gave any consideration to the real world effect on real world weaker parties who must either sign the arbitration “agreements” or forego employment or services. The wonderful world of compulsory arbitration (privatized justice) just got even more wonderful.

As readers of our articles on arbitration are aware, we have grave reservations about the fairness of pre-dispute mandatory arbitration agreements in the employment dispute context. The employee gives up his or her right to a judge and jury, generally must make do with truncated discovery rights, and must present his or her case to a professional arbitrator who is dependent for a livelihood on “frequent flyers;” i.e., employers and/or management side employment litigators who appear regularly before such arbitrators. Big awards for employees are far less likely in private arbitration than they are in court (where they’re not all that likely either).

But at least the employee-plaintiff got finality. If he or she won, a binding arbitration award was virtually impossible to overturn judicially. Until now, even if an employer provided in its boilerplate arbitration agreement that an arbitration award (or just an award in the employee’s favor which, believe it or not, this writer has seen more than once) was subject to appellate review in the courts, those courts would refuse jurisdiction.

Well, no more – at least in California. The California Supreme Court, in Cable Connection, Inc. v. DirecTV, Inc. (PDF, 152KB) (August 25, 2008) has just made a bad deal for employees a whole lot worse. Prior to last month, it was the law in California that the result of binding (or “final”) arbitration was subject to extremely limited judicial review. Effectively, the only bases to challenge a binding arbitration award was bias (or corruption) of the arbitrator(s), denial of a hearing, or an arbitrator acting beyond his or her grant of authority (i.e., deciding something not presented by the parties or authorized by the arbitration agreement). Indeed, the United States Supreme Court ruled earlier this year in Hall Street Associates, LLC v. Mattel, Inc. 128 S.Ct. 1396 (2008) that under the Federal Arbitration Act, the parties are not permitted to expand this very limited scope of judicial review, regardless of what their agreement might say. The raison d’etre of arbitration, after all, is to provide the disputants a quick and economical dispute resolution mechanism with little or no involvement by the courts. The United States Supreme Court’s decision in Hall Street is consistent with what had been both the federal and state judicial view that if you choose to opt out of the judicial system and go with arbitration, you’ve opted out. So long and good luck.

The California Supreme Court’s view is now different. After Cable Connection, assuming that the parties provide in their “agreement” for judicial review of an arbitrator’s purported errors of law or legal reasoning, the California courts will take jurisdiction of the appeal. This decision – which reverses years of Court of Appeal decisions – cannot be called “wrong” as a jurisprudential or logical matter. Arbitration is a creature of contract and (the conceit goes) the parties may agree to whatever they want, so long as it doesn’t offend public policy. The historical (and federal) antipathy to judicial review of the correctness of an arbitrator’s conclusions or legal reasoning, has largely been a function of two public policy considerations: (1) the parties should not be able to invoke the courts for just some part of the resolution of a dispute – it should be all or nothing; and, (2) the availability of judicial appeals (which can and do take years) is contrary to the entire logic of arbitration, which exists (supposedly) to provide quick and low-cost dispute resolution.

The effect of Cable Connection will make it far more difficult for aggrieved employees to have claims against their employers fairly adjudicated. You can be sure that employers all over the state are, as you read this, having their employment counsel revise their boilerplate mandatory arbitration provisions to include judicial review of legal errors by arbitrators. Employees (except for the most highly placed highly compensated ones – and even they don’t always pay attention to such details) don’t read those documents anyway; they just sign or find work somewhere else. After Cable Connection, employees of large employers will have to take their claims to private arbitration (no judge; no jury) in the first instance and, if anything more than a modest award results, the employers will appeal. The employees will then either have to wait for years and spend substantial sums on appellate counsel to defend those modest arbitration awards, or settle with the employer for less than the awards.

In our practice we tend to see pre-dispute arbitration agreements in the employment context, but Cable Connection will have impact on all arbitration in California, including patient/health care provider disputes, insured/insurance company disputes, consumer disputes, you name it. Unfortunately, there is no indication that the Court gave any consideration to the real world effect on real world weaker parties who must either sign the arbitration “agreements” or forego employment or services. The wonderful world of compulsory arbitration (privatized justice) for employees, patients, insurance claimants, etc., just got even more wonderful.

© 2008 Levine & Baker LLP., all rights reserved.