By Brandon Carr

Almost every employment agreement contains an ar­bitration clause requiring the employee to submit to ar­bitration if there is a dispute. But to many companies’ surprise, the arbitration clause will be found to be un­enforceable by a Court if the employee challenges it. In­deed, Courts routinely find companies’ arbitration clauses to be substantively or procedurally unconscio­nable. In other words, the Court may find that the terms contained in the arbitration clause are “too unfair” or “one-sided” to enforce. As a result, the company may end up having to litigate the dispute in Court, or an­other forum, which can be very costly to the company. To help ensure that your company’s arbitration clause is enforceable follow these five easy tips:

Tip I: State With Specificity Which Rules Will Gov­ern the Arbitration. Many arbitration agreements con­tain a vague reference to what rules will govern the dis­pute. For example, some arbitration clauses state, “JAMS rules apply.” Or, the “AAA rules shall govern any dispute under this agreement.” Often, a Court will find these kinds of references to be too vague. Many Courts have held that an employee is entitled to have complete disclosure as to the specific arbitration rules that will govern the dispute. (See, e.g., Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 245 (“The level of oppression is increased when . . . the employer . . . fails to clearly identify which rules will govern.”)). Therefore, do not state “JAMS rules apply,” instead state that the “JAMS Streamlined Arbitration Rules ap­ply” or the “AAA Employment Arbitration Rules and Mediation Procedures apply.” There are many versions of rules to choose from. For example, the American Ar­bitration Association currently has around seven to choose from.

Tip 2: Attach a Copy of the Governing Arbitration Rules to the Arbitration Agreement. Many arbitration agreements reference the rules that will govern the ar­bitration, but they do not actually attach a copy of the rules. Often times, Courts will find that failure to pro­vide a copy of the arbitration rules to the employee sup­ports a finding of procedural unconscionability. This common mistake and issue can be avoided easily. Al­most all arbitration rules are readily accessible online and can be downloaded instantly. For example, JAMS rules can be found at: rules-procedures, ADR rules can be found at: : http:// services/arbitration-rules/ and AAA rules can found at: Ac­cordingly, be sure to print out the specific rules that you want to apply to your dispute and attach them to your arbitration agreement. (See, e.g, Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 245 (“[T]he failure to provide a copy of the governing rules contributes to op­pression because the employee is forced to go to an­other source to find out the full import of what he or she is about to sign—and must go to that effort prior to sign- ing.”))-

Tip 3: Agree to Pay for the Arbitration. Many Courts have found that agreements that require the employer and the employee to share the costs of arbitration (for example, agreements that mandate that the employer pay 50% of the arbitration costs and the employee pay 50% of the arbitration costs) are prohibitively expensive and pose an unfair barrier for minimum wage or non- managerial employees to vindicate his or her legal rights. Therefore, consider agreeing to pay for all of the arbitration costs. The costs of arbitration are far less ex­pensive than the costs of litigating the dispute in a state court or in another forum. (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 110-11 (“[W]e conclude that when an employer im­poses mandatory arbitration as a condition of employ­ment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.”)).

Tip 4: Think Twice About Limiting Recovery of Statutory Remedies. Some arbitration agreements limit the employees’ ability to seek statutory remedies. For example, the arbitration agreement may state that the employee may not be awarded punitive damages, in­junctive relief or statutory penalties under any circum­stances by the arbitrator (even if they are the prevailing party). Limitations on these types of remedies may re­sult in an unenforceable arbitration agreement. A re­cent California Supreme Court case discusses this issue at length. In McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 963, the Court found that a provision in an arbitra­tion agreement that waives an employee’s statutory right to seek in any forum public injunctive relief under California’s Consumers Legal Remedies Act (CLRA), unfair competition law (UCL), or false advertising law is contrary to California public policy. While the McGill case arises in the context of a credit card consumer arbitration agreement, the Court’s reasoning is likely ap­plicable to other types of arbitration agreements, in­cluding employment agreements. The California Su­preme Court’s decision sends a strong signal to employers that they should think twice about using ar­bitration agreements that compel claimants to forfeit certain substantive statutory rights. Accordingly, avoid limiting statutorily imposed remedies such as punitive damages and attorney fees.

Tip 5: Give the Employee at Least 24 Hours to Re­view the Arbitration Agreement. Many Courts will find evidence of unconscionability when the employee is asked to sign the agreement on the spot. A 24-hour re­view period will help lessen any alleged unconscionabil­ity by allowing the employee the opportunity to seek counsel if he or she chooses to do so. Encourage the employee to take a day or two to read it over and con­sider it. While this might not be practical in every situa­tion, especially if the employee needs to start work im­mediately, it can be very important to ensuring that the agreement is ultimately enforceable. At the very least, if the employee’s start date is immediate, include a clause in your agreement that at least lets the employee know he or she does not need to sign the agreement on the spot and that encourages him or her to take at least 24 hours to review the entire agreement before signing it.

Finally, companies should keep an eye on the United States Supreme Court’s imminent decision in Epic Sys­tems v. Lewis. The case addresses whether an employer may waive an employee’s ability to participate in class, collective or representative proceedings in its arbitra­tion agreement. Specifically, the United States Supreme Court in Epic Systems is considering whether employ­ment contracts can legally bar employees from collec­tive arbitration under the National Labor Relations Act. In the arbitration agreement at issue in the case, Epic Systems requires its employees to resolve disputes through “individual” arbitration and to waive their right to participate in class, collective or representative proceedings. The U.S. Court of Appeals for the Seventh Circuit ruled that Epic Systems’ waiver was unenforce­able. Epic Systems argued to the Supreme Court that its waiver should be upheld because companies should have the freedom to contract. The Court’s decision will help companies understand the limits of waivers related to class and collective proceedings.

Adhering to these five simple rules will help to en­sure that your company’s arbitration clause will be found enforceable in the event an employee challenges your demand for arbitration.

Brandon Carr is a litigation attorney in Buchalter’s San Francisco office. Mr. Carr handles complex busi­ness cases and commercial disputes for large and mid­size companies.

Bloomberg Law’s Daily Labor Report, Vol. 33, No. 14, 2/16/18