California Arbitration Clauses and the Supreme Court

Arbitration clauses are an increasingly prevalent feature of employment contracts. Basically, these contracts require employers and employees to settle disputes outside of the courtroom through mediation and negotiation. This form of conflict resolution is believed by some to be more cost-efficient and effective for both parties, but especially employers.

In October, the Supreme Court heard oral arguments in MHN Government Services, Inc. v. Zaborowski, which deals with a California law stating contract clauses requiring arbitration are null and void if any of its terms are invalid. The Court will consider whether the Federal Arbitration Act (FAA), which favors arbitration, preempts the California law.

If the high court rules in favor of the FAA, agreements to arbitrate would be enforced, regardless of whether any of the clauses in the contract are found to be unconscionable or unenforceable. This would be a significant win for employers, whose increasing use of arbitration clauses has represented a recognition of the expediency of arbitration over the courts for resolving employment disputes.

The size of California is significant as well. The state is the largest jurisdiction in the nation, and such a ruling could affect the application of the FAA in other states with similar contract guidelines.