On Friday, the California Court of Appeal issued a decision that could have a significant impact on the judicial enforcement of binding arbitration clauses contained in employment contracts. In Pearson Dental Supplies, Inc. v. Superior Court of Los Angeles, the Court ruled that a one year time limitation contained in a binding arbitration agreement was enforceable, even as to discrimination claims brought under California’s Fair Employment and Housing Act (“FEHA”).
The plaintiff, a 59 year old maintenance worker, executed a Dispute Resolution Agreement with his employer that required the plaintiff to submit any employment related claim to arbitration “within one year from the date the dispute arose or the Employee or [defendant] first became aware of facts giving rise to the dispute.” The plaintiff was terminated in January 2006, and decided to pursue a FEHA age discrimination claim. Under FEHA, a plaintiff must file an administrative complaint within one year of the alleged discriminatory act. Once a plaintiff receives a “right to sue” letter, the plaintiff then has an additional year to file a civil complaint for damages.
The plaintiff did not submit his claim to arbitration as required by the agreement. Instead, the plaintiff filed an administrative complaint and acquired a “right to sue” letter from the Department of Fair Employment and Housing. Plaintiff then filed an age discrimination complaint in state court in October, 2006. The parties proceeded to litigate the case in state court, conducting discovery and motion practice, and neither party made mention of the arbitration agreement.
In February, 2007, after the one year anniversary of plaintiff’s termination, the defendant raised the arbitration issue in the trial court for the first time and the trial court granted defendant’s petition to compel arbitration. Once in arbitration, the defendant moved for summary judgment, alleging that because the one year arbitration time limit had expired and the plaintiff had not sought arbitration, plaintiff’s claims were time-barred. The arbitrator ruled in favor of the defendant, dismissing plaintiff’s claims. The defendant then asked the trial court to confirm the arbitration award, and the plaintiff asked the trial court vacate the arbitration award. The trial court agreed with the plaintiff, finding that the agreement’s one year time limit violated plaintiff’s substantive rights under the FEHA.
In Friday’s ruling, the appeals court reversed the trial court, agreeing with the arbitrator that the plaintiff’s claims were time-barred. Evaluating prior California cases on enforcing arbitration time limits, the court concluded that a statute of limitation contained in an arbitration agreement would be enforced where it “do[es] not unreasonably burden plaintiff’s ability to vindicate his statutory rights under the FEHA.” Because the plaintiff had managed to acquire a right to sue letter and file a state court complaint within eight months (well within the one year limit in the agreement), the court found that one year was a sufficient and reasonable time for plaintiff request arbitration. The court found it significant that the plaintiff had offered no explanation for his failure to request arbitration, and that plaintiff simply “chose not to pursue it.” The court also found it significant that the dismissal was entered by an arbitrator, and not the trial court, finding that “the scope of judicial review of arbitration awards is extremely narrow.”
This ruling is particularly noteworthy because the defendant’s decision to litigate in state court for six months, without raising the arbitration defense, did not waive defendant’s right to seek to compel arbitration and then to dismiss plaintiff’s claims. But the court was careful to limit its holding, finding that “the instant case is unusual” because it reached appeal “not before arbitration has occurred, but after it has occurred, and after the arbitrator, as he was authorized to do, determined that submission to arbitration was untimely under the arbitration agreement.” Therefore, a limited scope of appellate review was imposed.
Click here to read the full opinion.
Keesal, Young & Logan Employment Group