Changes In the World of Arbitration Agreements

by Holden Law Group

We’ve revised the Mutual Arbitration Agreement template available through our firm. The changes reflect recent developments in California law, including recent caselaw addressing provisions the courts view as enforceable and unenforceable. We’ve also built in provisions that preemptively respond to the arguments we see employees’ attorneys make when we seek to compel arbitration.

In short, this newest version of the agreement is more likely to hold up better against the new challenges we are seeing. It requires a few steps for implementation. Here’s what you need to know:

Here’s What’s New:

  1. Employees get a 30-day opt-out. An employee can opt out of an arbitration agreement by giving HR, or a designated point of contact, a signed written notice within 30 days of signing the agreement. This may seem backwards, but it’s a significant improvement to enforceability and is designed to prevent future arguments related to unconscionability. When courts decide whether to enforce an arbitration agreement, one of the main questions is whether the employee had a real choice in whether or not to sign and whether in fact the agreement was truly mutual. The inclusion of opt-out language weighs heavily in favor of establishing an employee’s meaningful choice.
  2. How you present the agreement matters. Don’t call the agreement “mandatory” or a “condition of employment.” Even though the law changed on an employer’s ability to make arbitration agreements a condition of employment, saying that, undercuts the opt-out process. And a plaintiff’s lawyer can use it to argue against the agreement’s enforceability in the future. If an employee opts out and later becomes disgruntled, those words could also be manipulated to support a retaliation claim.
  3. PAGA claims are split in two. The courts treat PAGA claims as encompassing two parts: a representative component and an “individual” component. Under the updated agreement, the employee’s “individual” PAGA claim is decided in arbitration. The part brought on behalf of other employees goes to court, and the agreement provides that the court case will be put on hold (or stayed) until the arbitration is finished. Courts have generally enforced this kind of provision, though a court may still decide how long the stay lasts. Be aware that winning or settling the individual PAGA claims in arbitration does not end the court case in full—it simply resolves the question of whether that employee has suffered a Labor Code violation and, consequently, whether the employee may continue to represent other employees in court. In other words, the agreement makes PAGA claims more difficult and expensive for the plaintiff’s attorney to litigate, but it doesn’t automatically make the PAGA claim go away.
  4. Sexual harassment and assault claims can go to court. Federal law has allowed this since 2022, and the agreement now says so directly. The employee decides where those claims are heard.
  5. A judge decides whether the agreement is enforceable, not the arbitrator. The arbitrator still decides whether a particular claim is covered but a judge will decide whether the agreement itself is enforceable. This gives you a clear and predictable way to resolve any challenge to the agreement.
  6. The process is clearer.
  • Before anyone files, there’s a 30-day period to try to resolve the dispute informally.
  • The arbitrator must be a retired judge or a California attorney with at least 10 years of experience.
  • Discovery is limited to 20 interrogatories and 2 depositions per side, plus relevant documents.
  • The goal is to finish within 12 to 18 months, with a written decision that explains its reasons.
  1. Confidentiality has consequences. Both sides must keep the proceedings confidential. Each breach carries $2,500 in liquidated damages. Employees can still go to government agencies, talk about unlawful conduct at work, and use their rights under applicable state and federal laws.
  2. Electronic signatures are covered. DocuSign, Workday and similar tools all work.

Rolling Out the New Agreement:

  • Fill in the brackets. Add your company name and the HR contact who will receive opt-out notices and provide the JAMS rules.
  • Countersign every agreement. The agreement is mutual, so a company representative needs to sign it. An agreement only the employee signed is much harder to enforce.
  • Get the acknowledgment initialed. Give employees a reasonable amount of time to review the agreement before they sign.
  • Keep a record of opt-outs. Never treat an employee differently because they opted out.
  • Pay JAMS invoices on time. This is the most important item on the list. California gives you 30 days from the due date to pay the arbitration fees. If you miss it, the employee can move the case to court and seek sanctions. We recommend setting your own deadline at 15 days after receipt and keeping these invoices out of your normal approval process.

If Your Company Is Already Using an Earlier Version:

Your current agreements stay in effect for the employees who signed them. Neither side can change a signed agreement alone. To move to a new version, you’ll roll it out as a new agreement for employees to sign, typically when you roll out a new and updated Employee Handbook.

We will be having a Webinar on Tuesday, November 10th, 9:30am-10:30am regarding all of the above and providing more in-depth explanation on some of the changes. We will also have a Questions & Answer portion following the webinar.

REGISTER FOR THE WEBINAR

If Your Company Is Enrolled In Holden’s Annual Handbook and Arbitration Agreement Update Program:

We will be sending out updated 2027 handbooks and arbitration agreements starting next week. We will be using the updated arbitration agreement template described above. Please join the upcoming webinar to get all your questions answered about the new arbitration agreement updates.

In the meantime, if you have questions about the updates, the webinar or updating your existing handbook or arbitration agreement, Contact us at info@holdenlawgroup.com.

This content is general information, not legal advice for your situation.