California Arbitration Agreements Do Not Always Have to Comply with Armendariz

In California, arbitration agreements will be deemed "unconscionable" if they concern discrimination or "public policy" causes of action, unless they comply with the procedural requirements set forth in Armendariz v. Foundation Health Psychcare Services.

Armendariz requires, among other things, "neutral arbitrators, more than minimal discovery, a written award, and all of the types of relief that would otherwise be available in court and, in addition, "'do[] not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.'"

Many an arbitration agreement has been invalidated under Armendariz, either because the arbitration agreement shifted costs to the employee, did not provide for discovery, or unduly limited remedies. There also is the argument that Armendariz requires "mutuality," which means that if an agreement is not entirely mutual, it is invalid as unconscionable.

Well, in Giuliano v. Inland Empire Personnel, the plaintiff sued for breach of contract, alleging he was not paid bonuses or severance to which he was entitled. He signed an arbitration agreement that probably would have failed under Armendariz. But the Court of Appeal here said that because no FEHA or public policy claim was at issue, Armendariz did not apply.

This decision is significant, because many employers are sued for breach of contract, fraud, and other causes of action not involving discrimination or harassment If Armendariz does not apply, employers will have significant freedom to include in these arbitration agreements terms that would not normally be upheld under Armendariz, e.g., a waiver of entitlement to punitive or tort damages, short statute of limitations, carve-outs permitting the employer to seek injunctive relief, etc. Employers seeking to change arbitration provisions must have them carefully reviewed by counsel - not kidding.

DGV