Recent Developments in California: Employee Arbitration Agreements

Originally published on 29 October, 2002

We want to bring to your attention two recent developments concerning arbitration. First, a split panel for the 9th Circuit U.S. Court of Appeals held in EEOC v. Luce, Forward, Hamilton & Scripps that an employer could lawfully require its applicants and employees to arbitrate Title VII employment discrimination claims as a condition of employment. Shortly after that, California Governor Gray Davis vetoed Senate Bill 1538, which sought to undermine recent court decisions that permitted employers to require employees and job applicants to sign pre-dispute agreements to arbitrate certain California statutory claims.

In Luce, Forward, legal secretary Donald Lagatree applied for a position with a law firm. The firm granted him a conditional offer of employment, but sent him an offer letter that included an arbitration provision requiring Lagatree to submit all "claims arising from or related to his employment" to binding arbitration. After Lagatree refused to sign the arbitration provision, the firm withdrew its job offer. Lagatree sued the firm in Los Angeles Superior Court for wrongful termination. The Superior Court granted the firm's motion to dismiss, holding that it did not unlawfully discharge Lagatree when he refused to sign the arbitration agreement. The Superior Court's decision was affirmed by a California Court of Appeal.

After Mr. Lagatree's Superior Court action was dismissed, the EEOC brought suit against the firm in United States District Court on the grounds that: 1) the firm's standard and compulsory employee arbitration agreement was unlawful under federal law, including Title VII, and 2) the firm had unlawfully retaliated against Lagatree in violation of Title VII by terminating him when he refused to sign the agreement. The District Court enjoined the firm from requiring its employees to agree to arbitrate their Title VII claims as a condition of their employment; the firm appealed.

The Ninth Circuit concluded that the firm had a right to refrain from hiring Lagatree when he refused to sign the mandatory arbitration agreement and that the firm had not unlawfully retaliated against him by thereafter terminating his employment. The Ninth Circuit declared that its own precedent, Duffield v. Robertson Stephens & Co., 144 F. 3d 1182 (9th Cir. 1998) was no longer "good law." (In Duffield, the Ninth Circuit had held that employers could not compel individuals to waive their Title VII...