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Paul Zimmerman

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Arbitration Agreements: Do Yours Include All Necessary Carve Outs?

Attention employers, including those of you in the hospitality space. The California Supreme Court issued a ruling within the last week significantly impacting your ability to arbitrate certain disputes with employees. Consequently, if you have entered into any stand-alone arbitration agreements with employees or employment contracts with arbitration provisions – or should you plan on doing so going forward – read on.

For a variety of reasons, many employers find arbitration to be a preferred forum for dispute resolution: the chance to avoid unreasonable damage awards; simplified rules of civil procedure and evidence; a faster, more cost-effective and confidential process from beginning to end (including more streamlined discovery); and the ability to avoid class actions. Likewise, arbitration facilitates the management of an employer’s legal risk to the extent a comprehensively written arbitration agreement prohibits or otherwise limits some of the remedies employees can routinely seek in court; class action exposure, for example.

All of this remains true in the wake of the Court’s recent decision in McGill v. Citibank NA; however, yet another restriction has now been placed on the type of matters that may be arbitrated – specifically, those seeking public injunctive relief. Indeed, the Court in McGill concluded that an arbitration provision that waives the right to a public injunction is contrary to California public policy and, therefore, unenforceable. Of note, in the absence of a clearly applicable severability clause, the Court did not address whether the remainder of the arbitration agreement in McGill was rendered invalid by virtue of the unenforceable public injunctive relief language.

Given the ruling in McGill, employers would help themselves by including provisions in their arbitration agreements carving out claims for public injunctive relief, as well as other categories of disputes not subject to arbitration (e.g., the right to bring representative actions under the California Private Attorney General Act (PAGA), etc.). This is true of non-employment-related arbitration agreements too. Hoteliers, pay heed. Of course, we at Michelman & Robinson, LLP are happy to answer any questions you may have on the topic.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.