Arbitration can be an efficient method of resolving differences for both parties to a dispute. Like all contract provisions, arbitration clauses must be carefully crafted, or courts will not enforce them. Certain claims, by state and federal laws, are not subject to arbitration. When an arbitration agreement broadly includes language that would include these non-arbitrable claims, the Court may determine that none of the claims may be subject to arbitration. That can be a poor result for both parties to the contract.
Severability Provisions
To remedy this, and the changing law on what claims may be subject to arbitration, most agreements contain a “severability” provision. These provisions provide (in layman’s terms), that if the Court finds anything wrong with the way the arbitration agreement is written, the parties agree to toss that part out, but keep and enforce the rest.
Nichole Kec v. Superior Court
A newly published Court of Appeal decision reminds California employers and employees that failing to carefully craft severability provisions risks the entire arbitration being declared invalid. In other words, if the language of the severability provision does not actually allow the non-arbitrable claims to be severed from the agreement, the Court will find that nothing is subject to arbitration. This can have disastrous results for both parties.
Trial Court Grants Employers Motion to Compel Arbitration
In Nichole Kec v. Superior Court, a former employee brought both arbitrable and non-arbitrable claims against her former employer. That is, claims that by law could be subject to arbitration by agreement of the parties, and claims that by law do not allow an employee to waive their administrative or court-based remedies.
As is common, the employer moved to compel arbitration of the arbitrable claims and stay the remaining claims until the completion of arbitration. The trial court granted this motion. The employee filed an appeal.
Court of Appeals Reverses
Section 5 of the agreement contained the following representative waiver:
“The Parties waive the right to bring, join, participate in, or opt into, a class action, collective action, or other representative action, whether in court or in arbitration. This Section (Section 5) may not be modified or severed from this Agreement for any reason.”
Reversing the trial court, the Court of Appeals found the representative waiver within Section 5 to be void. The Court reasoned that the term “representative action” covers claims that cannot be waived.
While a severability clause can generally save an agreement containing an illegal provision, where “severability is not found, the contract is void.” And while the arbitration agreement contained a severability clause in another section of the agreement, the Court found that particular clause made the representative waiver provision not severable. Section 16 stated in part:
“Except for Section 5, if any provision of this Agreement is held by a court of competent jurisdiction or an arbitrator to be invalid, void, or unenforceable, the remaining provisions shall, nevertheless, continue in full force without being impaired or invalidated in any way. If Section 5 is found by a court of competent jurisdiction to be, in any way, unlawful, invalid, void or otherwise unenforceable, the Agreement becomes null and void as to employee(s) who are parties to that particular dispute, for purposes of that dispute in the jurisdiction of the court delivering the ruling.” (emphasis added).
Takeaway
Since many arbitration agreements contain representative action waivers, this case serves as a cautionary tale to carefully review all aspects of employment arbitration agreements. Contact CASHMAN LAW today for a free consultation to see how we might assist.
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