With an eye toward containing the costs of defending an employment-related lawsuit, some employers require their employees to sign mandatory employment arbitration agreements. Although California law generally encourages arbitration use, the courts won’t uphold every employment arbitration clause—as one hospital recently learned the hard way.

Employees Agree to Arbitration, Sue

Anesthesiologists “Sikh” and “Chow” belonged to a medical group with four other anesthesiologists. In 2006, the group entered into a contract with Hollywood Presbyterian Medical Center, a hospital operated by CHA Hollywood Medical Center, to provide all anesthesiology services at the hospital as members of its medical staff. The contract required arbitration of any dispute related to the contract, in accordance with arbitration rules established by the American Health Lawyers Association (AHLA). Sikh and Chow signed a “waiver and agreement” that bound them to the contract with the hospital.

Sikh and Chow subsequently sued the hospital and the medical group, alleging that they were removed from the hospital’s anesthesiology department schedule in 2008 because of their age and national origin. The hospital and medical group filed a petition to compel arbitration as the contract required. The trial court ordered arbitration of the claims, and the doctors appealed.

Court Strikes Down Clause

The appeals court recently sided with the doctors and ruled that the arbitration clause was not enforceable.

Although California courts have consistently recognized a strong public policy in favor of arbitration, they will refuse to enforce arbitration clauses that are extremely unfair or one-sided—what the courts call “unconscionable.” Here, the court noted that the arbitration clause was tucked away on page 13 of the contract, in the same typeface as the rest of the document, and that the plaintiffs weren’t provided with copies of the AHLA rules. Furthermore, the doctors were required to sign the waiver and agreement that bound them to the contract without reviewing the contract and as a condition of practicing at the hospital.

The court also noted that the AHLA arbitration rules completely barred claims for damages in employment-related cases. An arbitration clause for employment-related claims, said the court, must provide for the same types of remedies that a court could order—including damages.
Suh v. CHA Hollywood Medical Center, Cal. Ct. Appeals (Dist. 2), No. B219174 (2010).

Tips to Boost Enforceability

Although the arbitration clause in this case was struck down, California courts tend to uphold arbitration clauses that are properly crafted and negotiated. If you require your employees to arbitrate employment-related disputes, make sure the applicable arbitration rules:

• Are clearly highlighted and explained for employees; don’t bury them deep in a contract.
• Provide for all remedies that would be available in court.
• Provide for neutral arbitrators.
• Provide for more than minimal prehearing discovery.
• Require a written documentation of award.
• Don’t require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to arbitration.

Give your employees a copy of the applicable arbitration rules and have them sign a consent form acknowledging receipt of the rules.