Thus, the right to bring an enforcement action under PAGA serves a public purpose, and any contract purporting to waive that right contravened state law providing that “a law established for a public reason cannot be contravened by a private agreement.” Id. at 382-83 (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 100 (2000)).The court went on to analyze whether this rule was preempted by the Federal Arbitration Act (FAA).

The court of appeal also concluded that the trial court did not abuse its discretion in declining to sever the unconscionable terms.Practical Implications: Employers who hire independent contractors should consider adopting arbitration provisions that apply employment arbitration rules and protections rather than commercial arbitration rules, lest the court find that the relationship between the employer and the contractors is nonetheless “sufficiently similar to that of an employee-employer relationship” to conclude the parties’ arbitration agreement is subject to the requirements of Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000), and its progeny.

A. Assembly Bill 51AB 51 was introduced by Assemblymember Lorena Gonzales and will severely restrict the use of mandatory arbitration agreements in employment. The Bill adds section 12953 to the California Government Code (“FEHA”) and states that it is an unlawful employment practice for an employer to violate section 432.6 of the California Labor Code.B. Senate Bill 707In Armendariz v. Foundation Health Psychcare Services, Inc. case (2000) 24 Cal. 4th 83, the California Supreme Court concluded, among other things, that “when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.” In a number of cases after Armendariz, courts have held that an employer’s failure to pay the arbitration costs [and thus delaying or preventing the arbitration of the dispute] constitutes a material breach of the arbitration agreement.In line with this case law, SB 707, introduced by Senator Wieckowski, provides that a company’s failure to pay the fees of an arbitration service provider in accordance with its obligations contained within an arbitration agreement or through application of state or federal law or the rules of the arbitration provider hinders the efficient resolution of disputes and contravenes public policy.

The Second Circuit also joins at least the spirit, if not the particulars, of California’s jurisprudence on this issue, which looks at five factors to determine if the arbitration of statutory rights would amount to a substantive waiver of them. See, e.g., Ramos v. Superior Court, 28 Cal. App. 5th 1042, 1047 (Ct. App. 2018) (confirming the continuing validity of the California Supreme Court’s watershed decision in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000)). In California, those five factors evaluate process issues to make sure, fundamentally, that arbitration gives rights holders a fair shake.

When plaintiff filed suit against defendant for sex discrimination, retaliation, wrongful termination, and violation of California’s Equal Pay Act, defendant moved to compel arbitration of plaintiff’s claims in accordance with an arbitration agreement that plaintiff signed shortly after joining the firm. Defendant argued that because plaintiff was a partner and not in an employment relationship with defendant, (1) the requirements for arbitration clauses in mandatory employment agreements outlined in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83, 99 Cal. Rptr. 2d 745 (2000), did not apply; (2) Armendariz was no longer good law; and (3) even if Armendariz applied and was still good law, its requirements were satisfied. The trial court granted defendant’s motion but severed the provisions of the agreement relating to venue and cost-sharing.

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 costs of arbitration. See, e.g., Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000). If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.

(Code Civ. Proc. § 1281.2.) As the California Supreme Court observed in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 98, revocation of a contract is a misnomer because only offers to create a contract can be revoked. If an offer is revoked, there is by definition no contract or agreement.

The Court reaffirmed established precedent which holds that employer mandated arbitration clauses are not enforceable unless the employer pays for all fees associated with the arbitration. Gastelum is one of many appellate decisions to follow Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, the seminal California case on mandatory employment arbitration agreements. It also follows Wherry, et al. v. Award, Inc., 192 Cal.App. 4th 1242 (2011), a Court of Appeal case holding that Armendariz covers independent contractors as well as employees.

After careful consideration, Governor Brown was “not prepared to take the far-reaching step proposed by this bill for a number of reasons.” The Governor specifically referenced the California Supreme Court’s protections afforded to employees pertaining to arbitration agreements as explained in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000). Those protections include a neutral arbitrator, adequate discovery, no limitations on damages or remedies, a written decision by the arbitrator, judicial review, and limitations on arbitration costs.

After careful consideration, Governor Brown was “not prepared to take the far-reaching step proposed by this bill for a number of reasons.” The Governor specifically referenced the California Supreme Court’s protections afforded to employees pertaining to arbitration agreements as explained in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000). Those protections include a neutral arbitrator, adequate discovery, no limitations on damages or remedies, a written decision by the arbitrator, judicial review, and limitations on arbitration costs.