Arbitration Waivers May Keep Employers Out of Labor Commissioner Hearings

Many employers require employees to sign agreements that waive their right to bring a case in state court and agree to bring any claims through arbitration. Such agreements are generally enforceable as long as they contain required language. The question in this case is whether these contracts are enforceable when an employee files a claim with the Labor Commissioner instead of in state court.

Recently, an auto mechanic filed a wage claim for $100,000 with the California Labor Commissioner against his former employer. The employer tried to enforce the arbitration provision contained in an agreement with the employee to avoid appearing before the Labor Commissioner.

In this case, the court was “disturbed” by the manner in which the agreement was drafted and presented to the employee for signature. The employee was not given time to review the contract, the employer did not provide a copy of the contract to the employee, and the employer was not open to answering questions about the dense arbitration waiver paragraph.

However, the Court did find the agreement was fair in the providing an accessible and affordable option to arbitrate the claims. The employer acknowledged that it must pay all costs of arbitration under the agreement. Although not expressly stated, the agreement noted that the costs “will be determined by statute or controlling case law,” which require that the employer pay the arbitration costs. The court found that this was enough to fulfill the affordability requirement.

The arbitration waiver in the agreement outlined a procedure similar to that of civil litigation. Additionally, because a Labor Commissioner hearing is appealable, meaning if the employer looses it can appeal in state court thereby forcing the employee to respond to a claim in state court, the court found that arbitration is just as accessible as a Labor Commissioner hearing.

The court allowed the employer to require the employee to pursue his claims through arbitration instead of before the Labor Commissioner. This decision means that waiver of various employee-friendly wage claim provisions of the Labor Code does not make an arbitration agreement unconscionable so long as the resulting arbitration procedure is “affordable and accessible.”

This case is a win for employers who wish to avoid Labor Commissioner hearings. While Labor Commissioner hearings may provide a cheaper and faster alternative to arbitration for some lower-cost claims, the Commissioner is generally liberal in granting employee claims. Noting such pluses and minuses, employers can decide whether they wish to pursue resolution through arbitration or Labor Commissioner hearings.

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