With an eye toward containing the costs of defending an
employment-related lawsuit, some employers require their employees to sign
mandatory employment arbitration agreements. Although California law generally
encourages arbitration use, the courts won’t uphold every employment
arbitration clause—as one hospital recently learned the hard way.
Employees Agree to Arbitration, Sue
Anesthesiologists “Sikh” and “Chow” belonged to a medical
group with four other anesthesiologists. In 2006, the group entered into a
contract with Hollywood Presbyterian Medical Center, a hospital operated by CHA
Hollywood Medical Center, to provide all anesthesiology services at the
hospital as members of its medical staff. The contract required arbitration of
any dispute related to the contract, in accordance with arbitration rules
established by the American Health Lawyers Association (AHLA). Sikh and Chow
signed a “waiver and agreement” that bound them to the contract with the
Sikh and Chow subsequently sued the hospital and the medical
group, alleging that they were removed from the hospital’s anesthesiology
department schedule in 2008 because of their age and national origin. The
hospital and medical group filed a petition to compel arbitration as the
contract required. The trial court ordered arbitration of the claims, and the
Court Strikes Down Clause
The appeals court recently sided with the doctors and ruled
that the arbitration clause was not enforceable.
Although California courts have consistently recognized a
strong public policy in favor of arbitration, they will refuse to enforce
arbitration clauses that are extremely unfair or one-sided—what the
courts call “unconscionable.” Here, the court noted that the arbitration clause
was tucked away on page 13 of the contract, in the same typeface as the rest of
the document, and that the plaintiffs weren’t provided with copies of the AHLA
rules. Furthermore, the doctors were required to sign the waiver and agreement
that bound them to the contract without reviewing the contract and as a
condition of practicing at the hospital.
The court also noted that the AHLA arbitration rules
completely barred claims for damages in employment-related cases. An
arbitration clause for employment-related claims, said the court, must provide
for the same types of remedies that a court could order—including
Suh v. CHA Hollywood Medical Center, Cal.
Ct. Appeals (Dist. 2), No. B219174 (2010).
Tips to Boost Enforceability
Although the arbitration clause in this case was struck down,
California courts tend to uphold arbitration clauses that are properly crafted
and negotiated. If you require your employees to arbitrate employment-related
disputes, make sure the applicable arbitration rules:
- Are clearly highlighted and explained for
employees; don’t bury them deep in a contract.
- Provide for all remedies that would be
available in court.
for neutral arbitrators.
for more than minimal prehearing discovery.
a written documentation of award.
require employees to pay either unreasonable costs or any arbitrators’ fees or
expenses as a condition of access to arbitration.
Give your employees a copy of the applicable arbitration
rules and have them sign a consent form acknowledging receipt of the rules.