The Arcane World of Arbitration

It should be recalled that the arbitration process as compared to the courthouse litigation process usually removes a lot of leverage on the part of the complainant and thus is perceived by many as favoring the employer’s position rather than the employee. However, who has the advantage depends largely on the nature of the complaint and the damages involved.

Confidential
Another usual key element of an arbitration agreement is the very important confidentiality clause. Employers like to include this part simply because it keeps the information about your complaint private. Formal legal proceedings are public documents and are available for all to see. There is no confidentiality in a typical formal judicial process and trial.

Confidentiality provisions usually favor companies over the individual. Because companies tend to arbitrate the same claims over and over again, the process tends to favor the company. The confidentiality provision is considered by some courts as a “gag order.”

A typical confidentiality clause in an arbitration agreement follows:

“All claims, defenses, and proceedings, including the existence of a controversy and the fact that there is mediation or arbitration proceeding in existence, shall be treated in a confidential manner by the mediator, the arbitrator, the parties and their counsel, their agents and employees, and all others acting in concert with them . . .”

This provision is clearly designed to keep the claim quiet and information about it from other employees who might be interested in such a claim themselves. The company would feel that the less people who knew about the claim the better off the employer would be. Some courts have found this provision to be oppressive by itself.

Courts outline defects in confidentiality as follows. The company is placed in a far superior position (with confidentiality) by ensuring that none of any potential follow-on employees have any access to the details and precedent value of prior cases, while the employer accumulates a wealth of knowledge on how to negotiate the terms of its own unilaterally designed arbitration contract.

The unavailability of review of prior decided cases can prevent a plaintiff from obtaining the information needed to build a case of intentional misconduct or unlawful discrimination against an employee.

The inability to even mention the existence of a claim to current or former employees would handicap and even stifle an employee’s ability to investigate and engage in discovery. Additionally, California Labor Code forbids employers from keeping employees from disclosing certain “working conditions” and from retaliating against employees who do so. This statute in and of itself restricts confidentiality requirements.

California Labor Code: 232.5
“No employer may do any of the following: (a) Require, as a condition of employment, that an employee refrain from disclosing information about the employer’s working conditions. (b) Require an employee to sign a waiver or other document that purports to deny the employee the right to disclose information about an employer’s working conditions.”

The FAA
Not the Federal Aviation Administration, rather the Federal Arbitration Act 9 USC describes the legality of arbitration agreements in the federal arena. State laws also address arbitration agreements. The act says that arbitration agreements …”shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” 9 USC 2. The courts have said that the FAA fosters a liberal federal policy favoring arbitration agreements. However, arbitration agreements are not always valid. Courts should apply ordinary state law principles that govern the formation of contracts in order to determine validity.

Some general questions:

1. Is the agreement a contract of adhesion? Adhesion means does the contract contain surprise or concealed factors? Was undue pressure imposed to sign? Is it oppressive?
2. Is your only option to signing … leave and work somewhere else? Is there a meaningful opportunity to “opt out?”
3. Is it a “take it or leave it” proposition?
4. Are the terms of the agreement negotiable?
5. Is a traditional judicial forum (lawsuit) preserved for those who “opt out”?