96 | 2024 Cal-Peculiarities ©2024 Seyfarth Shaw LLP www.seyfarth.com sustain the award. That review would exceed the review provided by arbitration statutes, however, which very narrowly limit judicial scrutiny of an arbitration award to such matters as whether the arbitrator had a personal bias or clearly exceeded the arbitrator’s authority,139 and the Court of Appeal has held that extra-statutory judicial review of an arbitration award is forbidden.140 Surprisingly welcome news came in 2008, in a non-employment case, in which the California Supreme Court held that under California law, parties can contract for judicial review of legal error in arbitration awards.141 The high court reached this holding even though the U.S. Supreme Court had held that the FAA does not permit the parties to expand the scope of judicial review beyond those grounds specified by the FAA.142 The high court announced a special “California rule” and held that the parties may agree to have expanded judicial review of an arbitration award. Support for this rule appears in a California statutory provision for vacating an arbitration award when “[t]he arbitrators exceeded their powers.”143 The high court thus enforced (as a matter of California, not federal, law) a provision in an arbitration agreement that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.”144 The demise of second-arbitrator provisions. The Court of Appeal once upheld, as not unconscionable, an arbitration agreement authorizing a second arbitrator to review an arbitration award in the same manner as an appellate court would review a trial court judgment.145 But the tide has turned against this attempt to guard against run-away arbitration awards. Plaintiffs have successfully argued that a second-arbitrator provision, while facially neutral, adds costs and time to arbitration to the advantage of the employer as the better-resourced party. In one 2003 case, the Court of Appeal struck down a second-arbitrator provision that applied only to awards exceeding $50,000, on the ground that it gave an unfair advantage to the employer.146 And the Court of Appeal has found a second-arbitrator provision unconscionable even though it neutrally permitted either party to seek review without regard to any monetary threshold.147 5.3 Hostility to Employer-Mandated Forum Selection and Choice of Law Courts throughout America generally enforce forum-selection and choice-of-law provisions. But in California it’s different. California has shown special hostility to these provisions in the employment context. A 2016 California statute forbids employers from requiring employees who reside and work in California to agree, as a condition of employment, to litigate or arbitrate employment disputes either outside of California or under another state’s laws. The only exception is where the employee was individually represented by a lawyer in negotiating an employment contract.148 The statute applies to any contract “entered into, modified, or extended on or after January 1, 2017.” An employer that modified pay provisions of a 2014 employment agreement in 2018 thus found itself unable to enforce the agreement’s selection of an Ohio forum, even though the forum-selection clause itself had not been modified.149 Even before this statute hobbled employer efforts to select venue and the applicable law, California courts were reluctant to enforce forum-selection and choice-of-law provisions. One Court of Appeal decision reasoned that an arbitration agreement, by choosing Texas law to govern the parties’ disputes, was unconscionable.150 The Court of Appeal faulted Texas law for not recognizing an unconscionability defense, for not recognizing a private right of action to enforce wage and hour protections, for imposing a one-year limitations period, and for permitting the defendant to recover attorney fees and costs it could not recover under California law.151 The Court of Appeal addressed which state—California or Texas—had the greater interest in enforcing its law in this circumstance: “We acknowledge the value and efficiency to [a Texas-based company] of having a predictable, uniform wage-and-hour regime wherever it does business nationally, and we do not minimize the
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