As companies increasingly look to expand their operations to the West Coast, many are coming up against a key legal question: what should they be aware of when drafting employment agreements for Californian hires? Specifically, executives and human resources directors need to pay close attention to California’s particular rules around arbitration clauses.
One hypothetical scenario could see a human resources director needing a draft employment agreement by Monday morning for a new West Coast sales operation. In such a case, the executive could be feeling confident due to what they perceive as the bulletproof nature of the company’s arbitration clause. The thinking here is that arbitration clauses — often inserted into employment agreements to prevent costly court disputes — should make the hiring process relatively risk-free.
However, they could be in for a rude awakening. California is known to have its own unique laws when it comes to arbitration clauses in employment agreements. For instance, a number of court decisions in the state have confirmed that arbitration agreements must be both “procedurally” and “substantively” unconscionable to be voided. Whether or not this is possible will largely depend on the specific details of the clause and the agreement. In this case, that simple boilerplate arbitration clause might not cut it — companies must take the time to ensure the clause complies with California state law and is free of any potential ambiguities.
It’s crucial for companies to review their approach to arbitration clauses when hiring in California. As part of this process, they should consult legal counsel with knowledge of California’s laws to ensure all their legal bases are covered. If drafted correctly, an arbitration clause can offer both the employer and the employee a fair, efficient way to resolve any disputes. However, any oversight in the drafting can lead to costly, time-consuming litigation if the clause is found to be unenforceable under California law.
For an in-depth look at this issue, the following article “But we have an arbitration clause: considerations when hiring Californians” by the Health Care Compliance Association (HCCA) provides excellent insights.