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The shifting landscape of arbitration law in California

Arbitration clauses can save a business significant time and expense if drafted correctly. The enforceability of arbitration provisions and awards is a constant focus of appellate courts, however.

Arbitration law is a complex and nuanced area of the law constantly under review by appellate courts. Keeping up-to-date on advancements in arbitration law can be a difficult task. Businesses looking to draft arbitration clauses into contracts must be careful to include language appropriate to the contract and enforceable under state and federal law. Businesses currently involved in arbitration or looking to dispute an arbitration decision also may have legal options available.

At Yoka & Smith, LLP, our attorneys have significant experience in contract drafting, civil litigation, and arbitration matters. This article briefly discusses a recent case involving the enforceability of an arbitration award in California. For help with specific drafting questions or an arbitration dispute, contact our office for a consultation regarding potential legal options.

Recent decision by California Supreme Court upholds arbitration award

The benefit of arbitration is that it can resolve a legal dispute without involving the courts, potentially saving businesses time and money. However, one party to arbitration may disagree with the result, either by questioning the legality of the arbitrator's decision or the amount of the award. The California Supreme Court recently clarified when an appellate court can overturn (or correct) an arbitration award. The case, decided on January 29, 2015, held that an arbitration award that may have been decided incorrectly under state law was nevertheless enforceable.

The case involved an employee who was terminated for violating an employer's policy regarding outside work while on medical leave. During arbitration, the arbitrator used a legal theory "untested" in California courts, according to the California Supreme Court. That, by itself, however, was not enough to allow an appellate court to correct the award. Under the California Arbitration Act, an arbitrator can exceed his or her powers several ways; one of which is issuing an award that violates a party's rights which are unwaivable under state law.

In this case, the state's highest court found that the arbitrator may have, in fact, issued an award in error by relying on an inapplicable legal defense by the employer. However, the state's highest court determined that the plaintiff did not lose based on an unwaivable statutory right (in this case, being terminated while on medical leave). Instead, the business terminated the employee for violating company policy. So, even though the arbitrator may have been incorrect in the legal analysis of state law, the result was enforceable under California law (Richey v. Autonation, Inc.).

The recent case is just one example of an arbitration dispute decided under California state law and an example of the complexity and changing landscape of arbitration agreements. For help with a specific legal question or issue regarding arbitration agreements, contact Yoka & Smith, LLP.

Keywords: Arbitration clauses, arbitration award, Yoka & Smith, LLP, civil litigation

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