The enforceability of agreements to arbitrate employment disputes remains an open question. Federal and state courts have split over the enforceability of arbitration agreements.
California courts continue to attempt to enforce arbitration provisions in employment and pre-employment agreements. In Armendariz v. Foundation Health Psychcare Serv., Inc., 68 Cal. App. 4th 374, 80 Cal. Rptr. 2d 255 (1998), the employee signed an employment application form containing an arbitration clause. Later, the employee also signed a separate employment arbitration agreement pertaining to any future claim of wrongful termination. The employee subsequently filed a wrongful termination case alleging violation of the California Fair Employment and Housing Act and other tort and contract claims. The Court of Appeals in analyzing the enforceability of arbitration provisions in both agreements, concluded that the arbitration provision providing that employees could only recover lost wages was unfair. Comparing this to the normal damages allowed in contract and tort cases, the court concluded this was an unreasonable and drastic limitation of an employees remedies. However, the court did not find that the entire agreement was invalid; rather, the court simply severed the unfair language limiting the employees damages and enforced the remainder of the agreement to arbitrate.
On the other hand, federal courts continue to express a reluctance to enforce arbitration agreements. There is a conflict between two leading cases as to whether an employee may waive its right to a judicial forum for federal claims. See Alexander v. Gardner-Denver Co., 415 U.S. 36 (1994) and Gilmer v. Intersate/Johnson Lane Corp., 500 U.S. 20 (1991). The United States Supreme Court in Wright v. Universal Maritime Serv. Corp., 119 S. Ct. 391 (1998) involved an arbitration provision in a collective bargaining agreement. The Court recognized the conflict in Gilmer and Wright but expressly refused to resolve the conflict simply holding that under the facts of the case before it, there had not been a clear and unmistakable waiver of the employees rights to have his dispute litigated in a judicial forum.
In accordance with these recent cases, employers should avoid over-reaching language in its arbitration provisions and ensure that any arbitration provision clearly state that an employee is waiving his right to pursue discrimination claims in court.