October 22, 2021
Arbitration is increasingly common, and courts routinely enforce even the most tenuous arbitration agreements entered into between parties. Arbitration agreements entered into in the employment context, however, between employers and employees, do undergo more scrutiny by courts in deciding whether or not they are enforceable. The landmark California Supreme Court case Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz) established certain protections for employees and requirements for employment arbitration agreements when employees are suing for violation of their rights under the California Fair Employment and Housing Act (FEHA). Armendariz held that, among other requirements, pre-dispute arbitration agreements involving FEHA claims could not be made to serve as a vehicle for the waiver of statutory rights created by the FEHA, could not limit statutorily imposed remedies such as punitive damages and attorney fees, and could not require employees to bear any type of expense they would not be required to bear if they were free to bring the action in court.
One widely-known aspect of FEHA is its asymmetric standard for awarding attorney fees and costs. Pursuant to California Government Code section 12965(b), for civil actions brought under the FEHA, the court can award the prevailing party its reasonable attorney fees and costs, except that a prevailing defendant (the employer) cannot be awarded fees and costs unless the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so. This reflects California’s public policy of encouraging employees to vigorously enforce the state’s anti-discrimination laws, so they are not discouraged from pursing meritorious employment claims out of fear they may have to pay their employers’ attorney fees if they lose.
On the other hand, another widely-known aspect of American contract law in general is that contracts can specify that the prevailing party in any litigation between them (including arbitration) is entitled to recover its attorney fees.
What is the result, then, when an employment arbitration agreement involving FEHA claims contains a prevailing party fee-shifting clause? This is not a new or unanswered question. In fact, over 10 years ago (in 2010), the California Court of Appeal, applying the Armendariz principles, held that an arbitration clause in an employment agreement authorizing the recovery of attorney fees and costs in an arbitration (rather than adopting FEHA’s asymmetric standard) was unconscionable. [Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, disapproved on other grounds in Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237.]
What did remain unanswered, at least until recently, was whether a defendant employer could recover its attorney fees incurred in successfully bringing a motion to compel arbitration when the plaintiff employee refused to submit to arbitration (before the merits of a plaintiff’s FEHA claims are even considered). In October 2021, the California Court of Appeal, Second Appellate District, considered this question, and held that a prevailing defendant may indeed recover its attorney fees after successfully compelling arbitration, but only if the plaintiff’s opposition to the motion to compel was groundless. In other words, FEHA’s asymmetric attorney fee standard applies. [Patterson v. Superior Court of Los Angeles County (filed October 18, 2021) 2021 S.O.S. 5749.]
In Patterson, an employee sued his employer, Charter Communications (Charter), for various violations of the FEHA. Charter successfully moved to compel arbitration of the employee’s FEHA claims pursuant to a written arbitration agreement, and then moved for its attorney fees incurred in bringing the motion, since the arbitration agreement allowed a party prevailing on such a motion to recover its fees. The superior court awarded Charter its attorney fees, and the employee filed a petition for writ of mandate.
The Court of Appeal noted that since Charter was the prevailing party as it pertained to the contract dispute between the parties (the enforceability of the arbitration agreement), it was entitled to its attorney fees under the fee provision, but only to the extent not otherwise prohibited or limited by the FEHA. Citing Armendariz and California’s policy of encouraging the vindication of FEHA claims, Patterson stated that a fee-shifting clause directed to a motion to compel arbitration would be similar to a general prevailing party fee provision, and would risk chilling an employee’s access to court in a FEHA case absent the asymmetric attorney fee standard Government Code section 12965(b).
- Permitting Charter to recover its attorney fees for a successful motion to compel arbitration in a pending FEHA lawsuit without a showing the plaintiff’s insistence on a judicial forum to determine his or her claims was objectively groundless similarly denies the plaintiff the rights guaranteed by section 12965(b) with a corresponding chill on access to the courts for any employee or former employee who has an arguably meritorious argument that the Charter arbitration agreement is unenforceable. Even with a strong claim of unconscionability, an employee might not pursue it and risk a substantial award of attorney fees before arbitration begins.
However, while the plaintiff employee had asked the Court of Appeal to find the entire attorney fee provision invalid and unenforceable, the court did not go that far. Recognizing the “strong public policy favoring arbitration” and “the requirement we interpret the provisions in a contract in a manner that render them legal rather than void when possible,” Patterson simply construed the prevailing party fee provision in the arbitration agreement to impliedly incorporate the FEHA asymmetric rule for awarding attorney fees and costs.
- That is precisely the course followed by the Supreme Court in Armendariz, which, after concluding it violated FEHA to require an employee to pay the costs associated with arbitration of a FEHA claim, held, “[A] mandatory employment arbitration agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the employer to pay all types of costs that are unique to arbitration.” As a result, the Court continued, “[t]he absence of specific provisions on arbitration costs would therefore not be grounds for denying the enforcement of an arbitration agreement.”
- Similarly, by construing the fee-shifting provision in the Charter arbitration agreement to preclude an award of attorney fees and costs to Charter following a successful motion to compel arbitration absent a showing that [the employee’s] opposition to the motion was frivolous, unreasonable or groundless, as set forth in section 12965(b), the provision is enforeable.
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This article is based on the law as of the date posted at the top of the article. This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.