Continued Employment as Consideration for Arbitration Agreement in California: What You Need to Know

In recent years, many California employers have required their employees to sign mandatory arbitration agreements as a condition of employment. These agreements typically require employees to give up their right to sue their employer in court and instead resolve disputes through arbitration.

One key question that often arises in these situations is whether continued employment can serve as consideration for the agreement. Put simply, consideration is the legal term for something of value that each party gives to the other in exchange for a contract.

California law generally requires that a contract be supported by consideration in order to be enforceable. However, the law is somewhat murky when it comes to arbitration agreements and continued employment.

In 2014, the California Supreme Court addressed this issue in the case of Iskanian v. CLS Transportation Los Angeles, LLC. In that case, the court held that, under certain circumstances, continued employment can serve as consideration for an arbitration agreement.

Specifically, the court held that if an employer makes it clear that the arbitration agreement is a condition of continued employment, and the employee actually continues to work for the employer after signing the agreement, then continued employment can serve as consideration.

However, the court also noted that there are limits to this rule. For example, an agreement that is forced on an employee and is not truly voluntary may not be enforceable, even if the employee continues to work for the employer. Additionally, there may be situations where continued employment is not enough to provide adequate consideration, such as if an employee is asked to sign a new agreement without any additional benefits or compensation.

Overall, the key takeaway is that employers must be careful when requiring employees to sign arbitration agreements. If an employer wants continued employment to serve as consideration, they must make it clear that the agreement is a condition of employment and ensure that the employee actually agrees to the terms voluntarily.

Employees, on the other hand, should carefully review any arbitration agreements they are asked to sign and consider seeking legal advice if they have concerns. In some situations, employees may be able to negotiate the terms of the agreement or push back against a requirement to sign it in order to keep their job.

In conclusion, continued employment can serve as consideration for an arbitration agreement in California, but there are important limitations and requirements that employers must follow. By understanding these issues, both employers and employees can protect their rights and interests in the workplace.