Arbitration Agreements | California observations

I moved to the Bay Area in April 2024 to work for a tech company, after a 9-year stay in Zurich. I was looking for an adventure and wanted to experience something new in the tech center of the world. I wanted to understand how the system works in the tech world via my own eyes and experience. In this series of diaries, I want to share some of my learnings and thoughts along the way, as a naive engineer/researcher who just left the university to take his first job.

I normally read carefully through all contracts before I sign them. For the transfer to the US, there were a bunch of documents. One interesting element in the offer package was an arbitration agreement. This was an interesting document. This document states that once signed, all employment disputes (with some exceptions) are subject to arbitration. Both parties effectively lose the right to a court or jury trial. There was no option to refuse the agreement in the interface, but the document states that employee can sign first then opt out by sending some information to an email. When I signed it, I understood that I can opt out at any time. However, when I revisited it after a while, the optout must be taken within 30 days, otherwise it is not guaranteed that there will be no adverse employment action.

This feels strange to me once I fully understand what’s going on. After all, it is an agreement that waives the employees’ right to resolve disputes in public court. It particularly prevent class action suits, and avoids setting any public precedents, which likely benefit the employer. While the arbitration process is also used in both Switzerland and China, it is often not exclusive, and only serves as a first attempt to resolve employment conflicts economically. One can always go to a formal court after an arbitration in these countries. However, after consulting the internet, it seems that in the US, the term and the practice of mandatory arbitration are widely adopted in employment relationships. It is also interesting to know that California intended to forbid mandatory arbitration in AB 51, but the bill is now permanently barred by a federal court.

The adoption of mandatory arbitration in the US leads to quite a few questions in my mind. The final decision on AB 51 is often regarded a win for employers, and the decision clarifies that “businesses have broader freedom to contract as they see fit [1]”. The ruling seems favors highly the employer, and I do not understand how can this happen. After all, employees rarely get a chance to draft and insert clauses in an employment/arbitration agreement. In my case, I was too sloppy to let the fineprints (only 30 day opt-out without adverse action) split through, because the sentences were constructed in a way that needs to be read several times to comprehend. Good thing is that it does not currently affects me in any way. Practically, this experience teaches me a good lesson on signing US contracts. I will probably need to read the papers more carefully before signing. On the other hand, I can see how many employees can easily sign this, even when it is not really mandatory.

One can interpret this ruling as limiting the governments’ intervention in private contracts, but it can also be seen as the ignorance regarding labor rights. While it may appear pro business, this eventually will be exploited by some businesses to exploit average salary men. The website of department of labor [2] lists some interesting cases where business owners attempt to just do that. I am yet to observe large company’s gain and loss from the arbitration, but seems that there are some interesting cases that I can follow[3]. Hmmm, I forgot I will not have access to arbitration results.

Overall, it seems to be a systematic design on the balance between employers and employees, business freedom and label right, and maybe also silence or shoutout issues at workplace. The vast majority of American legal system seems to prioritize efficiency without a hesitation here.

 

[1] https://www.conklelaw.com/ab51-californias-law-against-mandatory-employee-arbitration-agreements-is-invalidated
[2] https://blog.dol.gov/2023/03/20/mandatory-arbitration-wont-stop-us-from-enforcing-the-law
[3] https://www.law360.com/employment-authority/articles/1737771/apple-wants-opt-in-workers-ot-claims-sent-to-arbitration