Cal. App. Court Strikes Down Mandatory Arbitration Clause

By Tanya Roth, Esq. on August 02, 2012 | Last updated on March 21, 2019

In an earlier post, we talked about the limited enforceability of non-compete clauses in California employment agreements, when we discussed Marissa Mayer's move from Google to Yahoo.

Now, a California Court of Appeals has decided a case involving arbitration clauses in employment agreements. The court invalidated such a clause in a Neiman Marcus employment agreement.

The case involved a salesperson who was terminated and brought suit under the Fair Employment and Housing Act, alleging a variety of discrimination claims.

Neiman Marcus requested arbitration, citing a mandatory arbitration clause. The case was sent to arbitration and the arbitrator ruled in favor of Neiman Marcus. The award was confirmed by the trial court.

The California Appeals Court overturned the trial court's decision, however.

The arbitration agreement allowed for the employer to amend, modify or revoke the arbitration contract on 30 days written notice. Following the 30 day notice, the amendment would apply to all claims that had not yet been filed with the American Arbitration Association.

This modification provision, the court said, rendered the arbitration agreement invalid and unenforceable. The fact was that the modification provision created 2 classes of claims-- those filed and those unfiled at the 30 day mark.

It allowed for changes not only retrospectively but also prospectively.

As such, Neiman Marcus was able to pick and chose which claims it wanted to arbitrate. This right was unilateral, which was also a huge problem for the court.

Lesson learned here-- it may be easy to draft agreements in California employer-employee relationships but the laws are very tricky. When drafting agreements and clauses, read up on the law! As we've discussed in our blog post on Marissa Mayer and now in this case, contracts and clauses come under heavy scrutiny in California.

Related Resources:

Peleg v. Neiman Marcus Group, Inc (FindLaw CaseLaw)
Reform Needed for Mandatory Employment Arbitration Agreements (FindLaw)
California Supreme Court and Appellate Cases (FindLaw CaseLaw)