San Francisco Employment Law Firm Blog
A recently published California Court of Appeal decision, Morales v. Superior Court, provides an excellent example of why the precise wording of an arbitration agreement matters. A relatively small difference in contractual language ultimately determined whether an employee’s discrimination and wrongful termination claims would be decided in private arbitration or in court. For employees with potentially significant discrimination, retaliation, or wrongful termination claims, that distinction can be extremely important because the chances of winning a case in court are generally much higher than in arbitration.
Sylvia Morales worked for San Diego Gas & Electric Company (SDG&E) for nearly 20 years. After SDG&E terminated her employment in 2024, Morales filed a lawsuit alleging disability discrimination, failure to provide reasonable accommodation, failure to engage in the interactive process, retaliation, and wrongful termination in violation of public policy. Her claims were based on California’s Fair Employment and Housing Act (FEHA), the California Family Rights Act (CFRA), and California public policy. SDG&E responded by asking the court to force Morales into arbitration.
And initially, the employer won. The trial court concluded that Morales had agreed to arbitrate her claims and ordered the case into arbitration. Morales challenged that ruling in the California Court of Appeal, which reached the opposite conclusion.
The critical language required arbitration of: “Any dispute regarding any aspect of this Agreement” or an act allegedly violating the agreement. That may sound broad, but it was not nearly as broad as it could have been. The agreement did not say that Morales was required to arbitrate every dispute arising from or related to her employment. That distinction became decisive. The Court of Appeal compared Morales’s provision with broader arbitration agreements used in other cases. Those agreements expressly covered disputes arising from or relating to the employee’s employment or termination. Morales’s agreement instead focused on disputes concerning the employment agreement itself. Those are not necessarily the same thing.
A Discrimination Claim Does Not Depend on the Employment Contract
Morales was not claiming that the employer breached a provision of her employment agreement. Her claims arose from rights California law gives employees independently of their employment contracts. For example, an employee’s right not to be terminated because of a protected disability does not exist because an employer promised it in an employment agreement. It exists because California law prohibits disability discrimination. The same principle applies to many retaliation and wrongful termination claims.
Why Staying in Court as Opposed to Arbitration Can Matter
In court, an employee generally has the right to have disputed facts decided by a jury. Court proceedings and rulings are generally public. The California Code of Civil Procedure and court rules govern discovery and motion practice. And trial-court rulings are subject to a substantially broader system of appellate review. Arbitration is private and is decided by an arbitrator rather than a jury. Discovery may be more restricted depending on the agreement and applicable rules. Most importantly, judicial review of an arbitration award is extremely limited. Most importantly, an arbitrator is much less likely to award significant damages for emotional distress, which are part of many employment cases, than a jury which consists of non-attorneys, who can be more sympathetic to an employee who otherwise proved his case when awarding damages.
Morales provides another useful lesson. Morales had signed multiple documents when she was hired. The employer wanted the court to consider arbitration language contained in earlier documents along with the later employment agreement. However, the later agreement contained an integration or merger clause stating that it represented the parties’ entire agreement concerning the subjects it addressed. Because the later agreement addressed arbitration, the Court of Appeal concluded that its language controlled rather than simply combining it with the broader language in earlier documents.
This illustrates why reviewing only one arbitration document can be a mistake. When analyzing whether an employee must arbitrate, it may be necessary to review the entire sequence of employment documents, including:
- the employment application;
- offer letter;
- arbitration agreement;
- employment agreement;
- confidentiality or invention-assignment agreement;
- handbook acknowledgments;
- electronic onboarding documents; and
- later agreements or amendments.
A later document can potentially modify or supersede something the employee signed earlier.