Arbitration agreements in employment contracts are unenforceable in Arizona, the Arizona Supreme Court ruled Wednesday.
In a unanimous decision, the justices rejected efforts of one company to force its former workers into arbitration over their decision to quit and form a competing company.
That, the justices said, must be decided by a trial court.
Attorney Stanley Lubin said Wednesday’s ruling is a significant victory for workers.
"There’s an inherent inequality between an employer and an employee," he said.
Lubin said that workers, presented with a takeit-or-leave-it contract with a binding arbitration agreement, have no real choice, even if it does mean giving up their rights to sue.
Wednesday’s ruling is likely to result in efforts by the business community to revamp the statute to make these arbitration clauses enforceable.
"It’s an area that cries out for legislative clarification," said David Selden, who lobbies on behalf of the Arizona Chamber of Commerce.
Selden said he believes that arbitration agreements can be beneficial for both employers and their workers.
The case involves a contract Team Physicians had with Thunderbird Samaritan Hospital to provide emergency room physicians. Two years ago, some Team Physicians doctors formed North Valley Emergency Specialists to provide emergency room services.
All of the doctors had signed written employment agreements with Team Physicians, which contained a covenant not to work at Thunderbird Samaritan for a year after leaving the company. Each of those contracts said all disputes arising from the agreement or any breach must be settled by arbitration.
Team Physicians at first sued. But after part of that lawsuit was dismissed, the company went back to court to force the defendants to submit their cases to arbitration.
That move that was upheld by a trial court, citing state law which says that any written agreement to submit a controversy to arbitration "is valid, enforceable and irrevo- cable," with a trial judge having the power to order it.
But Justice Michael Ryan, writing for the high court, said that ignores another section of the law that says the statute "shall have no application to arbitration agreements between employers and employees or their respective representatives."
Lubin said there is a good reason for that exception.
He said arbitration clauses essentially amount to a worker agreeing to give up a right to have a judge and jury determine if the company acted improperly.
Lubin said that most employees are in no financial or legally sophisticated position to be able to reject those terms and negotiate other ones.
"Maybe Randy Johnson could," Lubin quipped about the Arizona Diamondbacks pitcher.
Selden, however, said arbitration is good for workers as well as their employers.
"They get a quick resolution, and without spending a lot of money on legal fees," he said.
Selden also said there are "a lot of procedural safeguards" built in to arbitration to ensure it is fair to both sides.
Selden said companies like arbitration because it ensures that disputes with employees are resolved quickly and with finality, saying that most arbitrations are not subject to appeal.