Arbitration in Oregon Employment Cases

by Joel Christiansen

Arbitration in Oregon employment cases is a rapidly growing trend. The trend is not just prevalent here in Oregon – it is a nationwide phenomenon (see this May 2016 article from the NY Times).

Arbitration is a form of alternative dispute resolution (ADR) in which parties resolve employment-related disputes outside of court. Instead of having a judge and/or jury decide a case, arbitration hearings are conducted in a private location – usually a law firm conference room – before a private attorney or retired judge called an arbitrator. The parties are typically represented by counsel. The arbitrator hears evidence and arguments and renders a binding decision that may later be entered as a judgment in court. Arbitration proceedings are similar but often less formal and more flexible than a court trial. Arbitration is generally a non-appealable process.

This article briefly explains some basic concepts related to Oregon employment arbitration. I provide sample language for an arbitration agreement from an arbitration service provider in Portland. I also include a relevant portion of a sample motion to compel arbitration I recently filed and won on behalf of a California corporation in Deschutes County Circuit Court in an employment law case.  I hope this information helps both employees and employers understand a bit more about how arbitration works.

Because arbitration rules and procedures change dramatically from case to case, I always advise parties to seek counsel as early in the process as possible. You can reach me by clicking here. Alternatively, you may contact the Oregon State Bar Lawyer Referral Service at 503-684-3763 for referrals to other attorneys.

How Arbitration in Oregon Employment Cases Works in Practice

In the employment context, arbitration is increasingly presented as a term and condition of employment in an employment contract, an employee handbook, or a stand-alone arbitration agreement (see below for example language). Arbitration typically takes the place of a court proceeding. Instead of filing a lawsuit, a plaintiff (aka “claimant” or “petitioner”) files a notice or statement of claim with a private arbitrator or arbitration service provider. Procedural rules from there depend largely on the arbitration service provider. Common providers include the Arbitration Service of Portland (ASP), American Arbitration Association (AAA), and Judicial Arbitration and Mediation Services (JAMS). Arbitration may also be court-ordered.

After arbitration is commenced, parties usually have an opportunity to respond to allegations in writing, conduct written and oral discovery (e.g., document exchange, depositions, etc.), and file relevant motions with the arbitrator. Arbitation hearings are scheduled in an efficient manner, which often results in faster resolution times than what is available in court. Even in Multnomah County, Oregon, which is known for a very fast file-to-trial time (within 12 months), arbitration is usually a faster alternative (4-8 months).

Arbitration rulings are usually non-appealable. This means that unlike court, a party does not have any grounds to challenge any decision or ruling an arbitrator makes during or after the arbitration hearing.

Pros and Cons of Arbitration in Oregon Employment Cases

The pros and cons of arbitration are hotly contested. Plaintiffs traditionally decry arbitration as a corporation-friendly process without checks or balances. Some claim that arbitration stacks the deck of justice in favor of corporations. By barring individuals from having cases heard by a jury of peers, there is concern that justice cannot be fairly served. According to Judge Young, a federal judge in Massachusetts, “business has a good chance of opting out of the legal system altogether and misbehaving without reproach.” Indeed, there is some support in Congress for limiting the use of arbitration agreements.

On the flip side, arbitration certainly offers benefits to traditional litigation. As I mentioned above, arbitration can be much quicker and efficient than litigation in court. Legal fees tend to be lower, though still not usually inexpensive. Arbitrators can admit/exclude evidence in an expedient manner and accommodate the unique needs of parties in ways that might otherwise be impossible in court. Finally, since arbitration rulings are usually non-appealable, parties need not fear having a favorable result tied up in several years of appeals.

Overall, my professional opinion concerning arbitration depends on the case and the parties involved. Some cases truly benefit from the expedience, streamlined nature, and finality of arbitration. In other cases, parties will have an interest in having factual issues evaluated by a lay jury and keeping open a right to appeal.

Sample Language for an Oregon Employment Arbitration Agreement

The following is sample arbitration agreement language in an employment agreement from the Arbitration Service of Portland. ASP explains that parties can control their “litigational destinies by including a predispute arbitration clause, which requires dispute resolution by arbitration and pre-selects the forum and the procedures for resolving future disputes.”

Any dispute or claim that arises out of or that relates to this employment agreement, or that relates to the breach of this agreement, or to the existence, scope, or validity of this agreement or the abitration agreement, or that arises out of or that is based upon the employment relationship (including any wage claim, any claim for wrongful termination, or any claim based upon any statute, regulation, or law, including those dealing with employment discrimination, sexual harassment, or civil rights, age, or disabilities), including tort claims (except a tort that is a “compensable injury” under Workers’ Compensation Law), or a dispute between Employer and Employee that arose/arises before, during, or after employment, shall be resolved by arbitration in accordance with the then effective arbitration rules of (and by filing a claim with) Arbitration Service of Portland, Inc., and judgment upon the award rendered pursuant to such arbitration may be entered in any court having jurisdiction thereof.

Sample Motion to Compel Arbitration in an Oregon Employment Case

The following is an excerpt from a motion to compel arbitration I recently filed and won on behalf of an employer in an Oregon state court in central Oregon (identifying information removed):

I. Relevant Facts

Defendant employed Plaintiff through January 1, 2016. (Amended Complaint, ¶ 2) On January 2, 2016, Plaintiff signed a written agreement memorializing the terms of Plaintiff’s separation. (“Separation Agreement”)(Amended Complaint, ¶¶ 1-2, Ex. A) The Separation Agreement provides for payments from Defendant to Plaintiff in exchange for Plaintiff’s general release, waiver of claims, covenant not to sue, and other terms. (Id.) In relevant part, the Separation Agreement provides:

10. Arbitration: The parties agree to arbitrate, in Deschutes County, Oregon, any and all disputes or claims arising out of or related to the validity, enforceability, interpretation, performance or breach of this Agreement, whether sounding in tort, contract, statutory violation or otherwise, or involving the construction or application of any of the terms, provisions, or conditions of this Agreement. Any arbitration may be initiated by a written demand to the other party. The arbitrator’s decision shall be final, binding, and conclusive. The parties further agree that this Agreement is intended to be strictly construed to provide for arbitration as the sole and exclusive means for resolution of all disputes hereunder to the fullest extent permitted by law. The parties expressly waive any entitlement to have such controversies decided by a court or a jury.

II. Legal Argument

Issues concerning the existence of an agreement to arbitrate and whether a controversy is subject to an agreement to arbitrate are for the court to decide. ORS 36.620(2). The court must decide the issues of arbitrability “summarily” – that is, “expeditiously and without a jury,” Greene v. Salomon Smith Barney, Inc., 228 Or App 379, 385, rev. den., 347 Or 348 (2009) – and order arbitration “unless it finds that there is no enforceable agreement to arbitrate,” ORS 36.625(1)(b). Gemstone Builders, Inc. v. Stutz, 245 Or App 91, 95 (2011).

Plaintiff’s legal basis for avoiding arbitration is an allegation that Defendant “failed to comply with the provisions of ORS 36.620(5) and (6).” (Amended Complaint, ¶ 1) However, the FAA preempts ORS 36.620 as a matter of law and therefore the conditions that statute purports to impose are abrogated: [Footnote: The FAA “applies in state as well as federal courts.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006). The FAA “create[d] a body of federal substantive law […] applicable in state and federal courts” and rejected the view that state law could bar enforcement of the FAA, even in the context of state-law claims brought in state court. Southland Corp. v. Keating, 465 US 1, 10–14 (1984)(internal citations omitted).]

The FAA preempts Oregon arbitration law when Oregon law imposes additional enforceability conditions not applicable to other contracts. See, e.g., Bettencourt v. Brookdale Senior Living Communities, Inc., No. 09-CV-1200-BR, 2010 WL 274331 (D. Or. Jan. 14, 2010). The Oregon Arbitration Act imposes conditions beyond those in the FAA for enforcing arbitration agreements, such as notice of arbitration agreements prior to employment […]. ORS 36.620(5). The FAA preempts these additional conditions.

Hermida v. JP Morgan Chase Bank, N.A., 3:15-CV-00810-HZ, 2015 WL 6739129, at *3 (D Or Nov. 3, 2015).

The applicable standard for determining arbitrability arises under Section Two of the FAA: “[A] contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction … shall be valid, irrevocable, and enforceable. 9 U.S.C. § 2.” Bettencourt, 2010 WL 274331, at *2; Hermida, 2015 WL 6739129, at *2. Hermida explains:

Congress enacted the Federal Arbitration Act (FAA) to “advance the federal policy favoring arbitration agreements.” Lowden v. T-Mobile USA, Inc., 512 F 3d 1213, 1217 (9th Cir. 2008). The FAA provides that arbitration agreements generally “shall be valid, irrevocable, and enforceable.” Id.; see also 9 U.S.C. § 2. Courts must “rigorously enforce” arbitration agreements and “must order arbitration if it is satisfied that the making of the agreement for arbitration is not in issue.” Simula, Inc. v. Autoliv, Inc., 175 F 3d 716, 719 (9th Cir. 1999) (citing Dean Witter Reynolds v. Byrd, 470 U.S. 213, 218 (1985)). Accordingly, the court determines “(1) whether a valid agreement to arbitrate exists, and, if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).

Hermida, 2015 WL 6739129, at *2 (emphasis added). Under this broad FAA standard for arbitrability, Plaintiff’s claims must be compelled to arbitration.

In the present case, Plaintiff admits that Plaintiff and Defendant entered into the Separation Agreement, which includes an express agreement to arbitrate. (Amended Complaint, ¶ 1, Ex. A, ¶ 10) Specifically, in exchange for valuable consideration, Plaintiff agreed to arbitrate all “claims arising out of or related to the validity, enforceability, interpretation, performance or breach” of the Separation Agreement. (Id.) Plaintiff admits that Defendant paid money to Plaintiff in exchange for the terms set forth in the Separation Agreement. (Id, ¶ 1) Plaintiff’s claims [. . .] fall squarely within the scope of the Separation Agreement, which provides that “[Defendant] will continue to pay [Plaintiff] [. . .].” (Id, ¶ 1, Ex. A, ¶ 3) To the extent Plaintiff asserts that the Separation Agreement was procured by fraud (See Amended Complaint, ¶ 10), that issue relates to the validity and enforceability of the contract, both of which Plaintiff agreed to arbitrate. (Id, ¶¶ 1, 2) See Rent-A-Center, West., Inc. v. Jackson, 561 U.S. 63, 65 (2010)(agreements to arbitrate threshold issues are enforceable).

Finally, ORS 36.625(6) provides that “[i]f a party makes a petition to the court to order arbitration, the court on just terms shall stay any judicial proceeding that involves a claim alleged to be subject to the arbitration until the court renders a final decision under this section.” Therefore, Defendant petitions this court for an order staying these proceedings until the court renders a final decision regarding the arbitrability of Plaintiff’s claims.