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By: Samson R. Elsbernd
Wilke, Fleury, Hoffelt, Gould & Birney, LLP
Sacramento, California

Arbitration agreements are commonplace in California employment relationships. As with employee handbooks, employers may attempt to reserve the right to modify their arbitration agreements with employees. The reservation of this right may be unilateral, meaning that the employer can modify or terminate the agreement but the employee cannot change his or her mind about the agreement. Such modification clauses are not illusory because the law implies a promise by the employer to exercise its right in good faith and pursuant to fair dealings, and hence, these modification clauses may be enforced.

In Casas v. Carmax Auto Superstores California, LLC, 224 Cal.App.4th 1233 (2014), an employee sued his employer and the employer moved to compel arbitration pursuant to an arbitration agreement. The trial court refused to enforce the arbitration agreement based on the employer's unilateral modification clause. The court of appeal reversed. In upholding the employer's modification clause, the court of appeal noted that the arbitration agreement was separate from (and not lost within) an employee handbook and required notice to the employees by a date certain each year of any modifications. However, the court of appeal would not enforce a provision of the arbitration agreement applying the agreement in effect at the time the employer received the claim. Instead, the arbitration agreement in effect at the time the claim arose applied, notwithstanding any subsequent modification to the arbitration agreement by the employer after the claim arose. Nevertheless, the employer's arbitration agreement contained a savings clause to modify the provision to comply with the law, so the employer's modification clause could be enforced.

California employers have some authority now for unilaterally reserving the right to modify or terminate their arbitration agreements with employees. Employers should make sure their arbitration agreements are not lost within other employment documents, and should include a savings clause to modify any arbitration provisions that conflict with the law to conform to the law. Employers should also consider providing advance notice to employees, though the failure alone to provide advance notice will not make the agreement illusory since employers must exercise their right to modify in good faith and pursuant to fair dealings with employees.

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