Signing an Arbitration Agreement Can Shorten Statute of Limitations for Employment Claims

More and more employers are requiring their employees to sign arbitration agreements as a condition of new or continued employment. The main advantage for employers is the gamble that an arbitrator is less likely to impose big punitive or emotional distress damages than a jury. In a decision issued on August 21, 2008, the California Court of Appeal issued a decision that highlights another advantage – a shortened statute of limitations period for employees to bring their claims.

In Pearson Dental Supplies, Inc. v. Superior Court (Turcios), the plaintiff employee (Turcios) brought a race discrimination suit against his employer, Pearson, under the California Fair Employment and Housing Act (FEHA). A year into his employment, Pearson asked Turcios to sign a “Dispute Resolution Agreement” which provided that all employment disputes would be submitted to binding arbitration, and that Mr. Turcios must raise any claims he has within one year of the adverse employment action. In 2006, Pearson terminated Turcios and he filed filed a civil suit. The employer filed a motion to compel arbitration, which was granted. The arbitrator then found that Turcios had not timely filed a petition to arbitrate (having instead filed a civil suit), and therefore his claims were time barred. Turcios asked the trial court to vacate the arbitrator’s ruling, arguing among other things, that the limitations shortening provision of the arbitration agreement is unenforceable. The trial court agreed.

Overturning the trial court, the Court of Appeals held that the arbitration agreement’s shortening of the time to bring the plaintiff’s claim is enforceable.

This decision comes on the heels of a string of litigation in California regarding arbitration agreements.

*In February of this year, in Metters v. Ralph’s Grocery Co. (2008) 161 Cal. App. 4th 696, the California appellate court held that a purported arbitration agreement is unenforceable where the agreement does not present as a contract, references policies not recited in the document signed by the employee, and is saturated with incomprehensible legalese.

*Mitri v. Arnel Management Co. (2007) 157 Cal. App. 4th 1164, held that an arbitration provision contained in an employee handbook is not enforceable as an agreement to arbitrate.

*Gentry v. Superior Court (Circuit City) (2006) 42 Cal. 4th 443, held that class action waivers in arbitration agreements are not enforceable if the court determines that the claims can best be adjudicated in a class arbitration.

Although it is tempting to read Pearson as a victory for employers, businesses should keep in mind that the whatever money they may think they’re saving by requiring arbitration can easily be spent litigating the enforceability of the agreement itself, and can often end in a ruling that the agreement fails to meet minimum due process standards. Arbitration agreements must be carefully drafted, and must be presented to employees in a manner that fully permits the employee to appreciate the gravity of what they are agreeing to.