Arbitration is a widely used dispute resolution method by which a neutral third-party hears both sides of the dispute and issues a decision that is usually binding. Submitting cases to arbitration is faster and less costly than litigation and offers finality of results. Although arbitration can be enforced in California employment disputes, the courts give a high level of scrutiny to protection of employees’ legal and constitutional rights.

California employers can now require employees to sign arbitration agreements, including waivers of their right to sue, as a condition of employment. A 2024 federal court decision permanently enjoined enforcement of a state law that had attempted to restrict the practice. However, such clauses must meet strict legal requirements to be enforceable. In Armendariz v. Foundation Health Psychcare Services, Inc. (2000), the California Supreme Court established that arbitration agreements in employment must:

1. Provide for a neutral arbitrator.

2. Allow for adequate discovery.

3. Require a written decision that allows for judicial review.

4. Not limit an employee's remedies (e.g., punitive damages or statutory remedies).

5. Avoid imposing costs on employees that they would not incur in court.

In addition, federal preemption under the Federal Arbitration Act (FAA) can complicate enforcement in some cases.

While many employment disputes are arbitrable, restrictions apply to certain types of claims, such as the following:

1. Claims under the Private Attorneys General Act (PAGA) — The California Supreme Court has ruled that PAGA claims, in which employees act as representatives of the state to enforce labor laws, cannot be waived or subjected to mandatory arbitration.

2. Discrimination and harassment claims — While claims under California's Fair Employment and Housing Act (FEHA) are generally arbitrable, including allegations of discrimination or harassment, the arbitration agreement must comply with the standards set by the state Supreme Court in the Armendariz case.

3. Wage claims — Claims for unpaid wages, overtime or meal and rest breaks are arbitrable, provided the arbitration agreement does not restrict state or federal statutory guarantees.

4. Public injunctive relief claims — Arbitration agreements that waive an employee's right to seek public injunctive relief are generally unenforceable.

The selection of an arbitrator is an important aspect of the arbitration process. Under California law, the arbitrator must be neutral and disclose any potential conflicts of interest to ensure impartiality. Failure to do so may render the arbitration award invalid. An arbitration agreement drafted by a skilled California employment attorney includes procedures for choosing a neutral arbitrator. In practice, both parties typically agree on an arbitrator from a list provided by an arbitration service, such as the American Arbitration Association (AAA) or JAMS. If the parties cannot agree, the arbitration service may offer its choice of an arbitrator.

At Garcia & Gurney, A Law Corporation in Pleasanton, California, our attorneys work to keep employers in Contra Costa and Alameda counties in compliance with all employment laws. We also represent employers in arbitration of workplace disputes. Call us at 925-468-0400 or contact us online for a consultation.