El Segundo satellite TV provider DirecTV is defending itself before the U.S. Supreme Court as it seeks to protect its use of arbitration agreements, which have become an increasingly popular tool that employers use to resolve disputes quickly, privately – and cheaply.
Businesses are waiting anxiously to see whether the court will maintain the status quo or strike down arbitration agreements and open employers up to untold millions in class-action legal costs. A ruling in the case, which began oral arguments this month, is due in the summer.
“Companies that have arbitration programs, they can use them to better manage their legal risks in a way that’s more cost-effective,” said Emily Burkhardt Vicente, a partner in the downtown L.A. law office of Hunton & Williams. “It can also make the proceedings a little more confidential. So what’s really at stake for companies is how they manage the risk of their litigation portfolio.”
Indeed, it has become standard in recent years for many employers to require both employees and customers to arbitrate disputes as a way to head off potentially long and costly courtroom battles, Burkhardt Vicente said.
The legality of that practice, however, has been put in jeopardy as lawmakers and regulators have sought to limit employers’ ability to mandate arbitration, citing claims that arbitration provides an unfair advantage to employers.
One state bill in particular, AB 465, would have prohibited California employers from requiring employees to arbitrate disputes as a condition of employment.
Gov. Jerry Brown vetoed the bill this month. Brown, in a veto message published Oct. 11, said he wanted to wait until the Supreme Court rules on the issue of arbitration – which it’s poised to do in the DirecTV case and one other – before he signs off on any new regulations.
“California courts have addressed the issue of unfairness by insisting that employment arbitration agreements must include numerous protections to be enforceable, including neutrality of the arbitrator, adequate discovery, no limitation on damages or remedies, a written decision that permits some judicial review, and limitations on the cost of arbitration,” Brown wrote in his message. “If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.”
Even though AB 465 did not become law, said Roland Juarez, another partner at Hunton & Williams, businesses are likely to see more efforts to rein in arbitration clauses in the near future.
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