Supreme Court Holds That Non-Statutory Wrongful Termination Claims are Subject to Mandatory Arbitration

July 1, 2003

By: Barbara L. McCully

In Little v. Auto Stiegler, Inc., 29 Cal.4th 1064 (2003), the California Supreme Court reaffirmed and expanded its decision in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) finding that claims for non-statutory wrongful termination in violation of public policy are subject to mandatory employment arbitration agreements. The Court also held that the Federal Arbitration Act did not preempt California state arbitration cost sharing standards and, thus, reaffirmed that employers are required to pay all types of costs that are unique to arbitration.

In so holding, the Little Court found that plaintiff-employees should have benefit of the same minimal protections as for claims brought under the Fair Employment and Housing Act (as was the case in Armendariz) including: the availability of damages remedies equal to those available in a suit brought in court, including punitive damages; discovery sufficient to adequately arbitrate a wrongful termination in violation of public policy claim; a written arbitration decision and judicial review sufficient to ensure that arbitrators have complied with the law respecting such claims; and, allocation of arbitration costs so that they will not unduly burden the employee.

Although the agreement in question was silent on who would bear the costs of arbitration, the Little Court held that this did not make the agreement unenforceable and that, on remand, the trial court should require the employer to pay "all types of costs that are unique to arbitration."

While the Court struck down as unconscionable and unenforceable a clause found in many employment arbitration agreements - permitting appellate review by a second arbitrator of all awards over $50,000 - it held that the invalidity of the clause was not a bar to compelling arbitration because the clause could be severed.

The Court explained that while there may certain circumstances that would justify an "asymmetrical arbitration agreement when there is a 'legitimate commercial need'", it found that - as a practical matter - the clause in question served only to maximize the employer's advantage in the arbitration process and, thus, was unconscionable.

However, because the Court found that this was the only provision that was unconscionable, and because no contract reformation was required, the unconscionable provision could be severed and the rest of the arbitration agreement left intact.