Litigation Topics: Arbitration

Arbitration agreements are a fact of life these days, especially in the employment context.  To be enforceable, those agreements must be fair, both procedurally and substantively.

If parties agree to refer their dispute to a referee rather than go to court, must the judiciary comply with their agreement?  Or does the court have discretion to reject the reference, in effect requiring the parties to litigate despite their agreement to the contrary?

The California Supreme Court has ruled that despite the parties' contract, the court retains discretion under Section 638 of the Code of Civil Procedure.  According to the justices, a trial court can independently review the matter and decide for itself whether a reference to a referee is appropriate.

In residential construction disputes, the legislature has mandated that the parties utilize an alternative dispute resolution (ADR) procedure that, hopefully, will cut down on litigation.  The procedure is known as the “Calderon” process, a reference to the legislator who sponsored the statute in question (Cal. Civil Code, §§ 895-945.5).

The Calderon pre-litigation process requires the affected homeowner to notify the contractor of defects and allow the contractor an opportunity to make repairs.

In many employment contracts, the employer insists that the employee agree to resolve work-related disputes through binding arbitration. And in some cases, the arbitration clauses are very restrictive – an attempt to prevent runaway awards and prevent an employee from asserting certain rights.

When a collective bargaining agreement contains a clause setting forth time limits for disciplinary action, courts will apply it, even if it means reinstating an employee who has been terminated for sexual harassment. 

When there is a dispute as to whether a given dispute must be arbitrated, who decided that question:  the arbitrator or a judge?

California law requires timely disclosure of all matters that may cause a person to doubt the impartiality of the arbitrator. (See Cal. Code of Civil Procedure, section 1281.9.)  In common parlance, this means that proposed arbitrators must disclose conflicts of interest – and potential conflicts of interest –to parties considering hiring them to decide a contested case.

In an important decision restating and expounding preexisting doctrine, the court of appeal has ruled that in California arbitrators enjoy broad immunity from liability for their acts as arbitrators.  In La Serena Properties v. Weisbach, a losing party sued the arbitrator and the American Arbitration Association (AAA) claiming that the arbitrator failed to disclose a conflict of interest that should have disqualified him to serve as the neutral decision maker.

There are differences between the California arbitration statutes (Code of Civil Procedure sections 1280-1294.2) and the Federal Arbitration Act (9 U.S.C. sections 1-16) and perhaps the clearest difference is when it comes to the arbitration of a class action.

Even thought a judge has a very limited power to overturn an arbitration award, if the arbitrator makes a clear error of law and thereby deprives a person of a statutory claim, the court may vacate the award. This is the essence of the decision of the California Supreme Court in Pearson Dental Supplies, Inc. v. Superior Court.