The enforceability of arbitration clauses in California is subject to a growing number of judicial disputes. In recent years, California employers who wished to require arbitration of employees' workplace discrimination claims have faced increasing obstacles by the courts' reluctance to uphold the validity of such arbitration clauses.

Since the California Supreme Court's premier decision in Armendariz v.Foundation Health Psychcare Services Inc., 24 Cal.4th 83 (2000), invalidating a mandatory employment arbitration agreement as unconscionable, appellate courts have largely followed suit. In the most recent case applying Armendariz, the Court of Appeal declined to enforce an arbitration agreement where the employee was "unfairly" coerced to sign the agreement before the employer would review the employee's discrimination complaint. Metters v. Ralphs Grocery Company, 74 Cal.Rptr.3d 210 (2008).

Potentially turning the tide for employers' ability to enforce arbitration agreements in California, the U.S. Supreme Court, earlier this year in 14 Plaza v. Pyett, 129 S.Ct. 1456 (2009), upheld the enforceability of a collectively bargained arbitration clause. Current California case law, including Armendariz, remains consistent with the Pyett holding and analysis; however, the key features found crucial in determining the enforceability of the arbitration clause at issue in Pyett may guide California employers to strengthen the enforceability of California arbitration clauses.

In August 2003, Steven Pyett and two other night-lobby watchmen for the 14 Penn Plaza LLC New York office building were reassigned to jobs as night porters and light duty cleaners. The employees, all over 50 years old and with decades of seniority, found that these reassignments led to loss of income and were less desirable than their former positions.

The employees were members of the Service Employees International Union, Local 32BJ, which entered into a collective bargaining agreement with the Realty Advisory Board on Labor Relations, a multiemployer bargaining association, including 14 Penn Plaza LLC. As union members, the employees first filed a grievance under the collective bargaining agreement procedures to challenge their reassignment, alleging claims of age discrimination, among others. When their grievance claims proved unsuccessful, the employees filed a lawsuit against 14 Penn Plaza in federal court, alleging that their reassignment violated the federal Age Discrimination in Employment Act and state and local laws prohibiting age discrimination. The company filed a motion to compel arbitration of the employees' discrimination claims based on the following arbitration clause in the parties' collective bargaining agreement: "There shall be no discrimination against any present or future employee by reason of race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law, including, but not limited to, claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, ... or any other similar laws, rules, or regulations.

All such claims shall be subject to the grievance and arbitration procedures (Articles V and VI) as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination" (emphasis added).

Upholding the enforceability of this arbitration clause, the court explained: "A provision in a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law."

Under the National Labor Relations Act, parties are required to engage in good faith bargaining on "wages, hours, and conditions of employment" to negotiate a mutually agreeable collective bargaining agreement. The court noted that the National Labor Relations Act provided the union and the advisory board with statutory authority to collectively bargain for arbitration of workplace discrimination claims. Therefore, the agreement's provision requiring arbitration of Age Discrimination in Employment Act claims must be honored unless the act itself prohibits arbitration of claims. Since nothing in the text or legislative history of the act explicitly precludes arbitration, the parties are free to negotiate to require arbitration of claims under it.

Even where the underlying statute (the Age Discrimination in Employment Act in this case) allows arbitration of its claims, the clause requiring arbitration must clearly and unmistakably state the parties' agreement to arbitrate. The collective bargaining agreement's arbitration clause survived the court's scrutiny and was held enforceable based on two key features.

The clause explicitly specified the statutory claims required for arbitration. The agreement expressly included the statutory claims subject to arbitration, such as "claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, ... or any other similar laws, rules, or regulations."

The court distinguished a previous case, Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), where an employee was permitted to bring a Title VII discrimination claim in federal court despite an arbitration clause in his collective bargaining agreement. The court explained that the arbitration agreement in Gardner-Denver did not mandate arbitration of statutory anti-discrimination claims. Rather, the clause merely required arbitration for any "differences arising between the [employer] and [union] as to the meaning and application of the provisions of this [collective bargaining] Agreement." Thus, the employee in Gardner-Denver was required to arbitrate contractual disputes over the agreement, but the employee was not required to arbitrate a Title VII discrimination claim under the arbitration clause. The Gardner-Denver court declined to read in an arbitration requirement for Title VII claims where the agreement did not clearly express such an intent.

The clause did not waive employees' substantive rights to be free of discrimination. The agreement's arbitration clause expressly stated that discrimination under any federal or states law is prohibited, but chose the agreement's grievance and arbitration procedures, rather than the courts, as the express forum to resolve discrimination claims.

In doing so, the arbitration clause was upheld, not unlike a "choice of forum" clause, where the parties agree on a certain mechanism for resolving a particular category of claims (i.e. workplace discrimination claims). Affirming its holding in a related case, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the court explained that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." Since the parties here, in their collective bargaining agreement, clearly and expressly elected arbitration rather than the courts to resolve statutory discrimination claims, the parties' intent to do so was honored and upheld by the court.

The question of whether California courts will adopt the U.S. Supreme Court's reasoning upholding arbitration of federal claims to state claims remains to be seen. As of now, however, current California Supreme Court precedent is consistent with the Pyett decision.

Under Armendariz, California employment contracts requiring arbitration of state discrimination claims must be "conscionable" and not be so one-sided against the employee as to be against public policy. The minimum safeguards to ensure conscionability of arbitration clauses include: a neutral arbitrator; more than minimal discovery; a written decision by the arbitrator; all of the types of relief that would otherwise be available in court; and the clause does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. Because these safeguards are essential to ensure the integrity of the arbitration process, arbitration clauses must contain them to be enforceable in California.

While requiring these minimum safeguards of conscionability, the California Supreme Court did not altogether prohibit clauses mandating arbitration of discrimination claims under the California Fair Employment and Housing Act. To the contrary, it recognized that Congress did not intend to prohibit mandatory arbitration agreements that encompass federal and state discrimination claims, including claims under the Fair Employment and Housing Act. Similar to federal discrimination claims under Title VII and the Age Discrimination in Employment Act, California discrimination claims under the Fair Employment and Housing Act may be resolved through arbitration, and an employer and employee may agree to mandatory arbitration as the exclusive mechanism for resolving these claims.

Accordingly, in light of the Pyett decision, California arbitration clauses may be more strongly enforced. Of course, arbitration clauses must still contain the Armendariz safeguards. Aside from that, Armendariz remains consistent with the Pyett decision upholding clear and unmistakable clauses requiring arbitration of statutory discrimination claims containing these two key features: the clause explicitly specifies the federal and state statutory discrimination claims required for arbitration, such as claims under Title VII, the Age Discrimination in Employment Act, the Fair Employment and Housing Act; and the clause does not waive an employee's substantive right against discrimination, but rather selects arbitration as the mechanism for resolving discrimination claims.

The California Supreme Court stated in Armendariz, "We find nothing in the language or the legislative history of FEHA that suggests it was intended to prohibit arbitration," and "assuming an adequate arbitral forum, we agree with the [U.S.] Supreme Court that by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum."

Although the exact impact of the Pyett decision on California arbitration clauses in employment agreements, employee handbooks, and/or collective bargaining agreements remains uncertain, current California case law regarding the enforceability of arbitration clauses is consistent with the U.S. Supreme Court's holding in Pyett. By applying both the Armendariz safeguards and the Pyett guidelines, California employers may strengthen the enforceability of their arbitration clauses to require arbitration of employees' workplace discrimination claims under state and federal law.