Arbitration DocumentAVOID EXPENSIVE WRONGFUL TERMINATION LAWSUITS: Have a Written Employment Agreement with Mandatory Arbitration Provisions

A typical small business nightmare scenario:

Although STARS Digital Photo service, (“STARS”) did not open for business before 10:00 a.m, the owner, Eric P., answered the knock on the storefront door just after 9 a.m. A nicely dressed young woman smiled at him and asked if he worked with STARS Digital. As he answered, “Yes, I’m the owner”, he noticed she was holding a stack of papers, which she then stepped forward and handed to him. “These papers are for you,” she said, and turned and walked off.  As he looked down at the papers, Eric realized that he had just been sued! His stomach sank as he read, “Summons & Complaint”.  He saw that the plaintiff was Mark W., a former employee who had worked with STARS for a few years before Eric had fired him, two weeks ago, for persistent tardiness and unreliability. As he read through the complaint, he saw that Mark was falsely claiming that he had a four year employment agreement, and that he was being discriminated against because he had a medical condition and because of his sexual orientation.

Eric had opened STARS five years ago, during which time his business had grown steadily and he now had ten employees, eight full-time and two part-time. Eric had fired employees in the past, but this was the first time STARS had been sued. As he read the Complaint, he could see that, not only was STARS being sued, but that he, too, was personally named as a defendant.

Eric hired a San Diego business litigation attorney who required a $10,000.00 retainer to begin working on his case. It was clear this was not going to be an inexpensive matter. The attorney charged $300 an hour, the best rate Eric could find for an experienced and highly recommended business litigation attorney. The attorney explained that, even if all the claims were false, as Eric told him they assuredly were, it would likely be difficult to defeat the claims by any pretrial motion. The attorney warned that,  if a pre-trial settlement could not be negotiated, it could take a year or more to get to trial, and that it might cost well over $100,000 in total attorney fees to litigate the case through trial, even if they won the case!


  1. Mandatory Binding Arbitration

The law is clear in California that employers can require employees to sign mandatory arbitration agreements as a condition of employment.  Given the expense and waste of time associated with litigation, our business law attorneys believe there is really no good reason an employer should not require every employee to sign a written employment agreement specifying that all disputes relating to their employment will be resolved by mandatory arbitration.  Exceptions can be made, of course, if a potential employee refuses to sign such an agreement, and the employer really wants to proceed with the hire.  But the risk of business litigation should be minimized as a matter of policy, and employment arrangements without mandatory arbitration provisions entail significant risk.

  1. “At-Will” employment

Absent an express agreement to the contrary, all employment agreements are “at-will” in California, meaning that either the employer or the employee can terminate the employment relationship at any time, for any reason, or for no reason, (with some exceptions).  An employment agreement does not have to be in writing, however, to include an agreement that it will last for some specified period of time, or that the employee will not be fired except for “good cause”, or the like.  As a result, it is unfortunately commonplace for discharged employees who did not have a written employment contract to sue their employer falsely alleging that there was an unwritten understanding that the employee could not be fired for some period of time, or for some specified reasons.

It is a simple matter for any employer to retain a San Diego business attorney to craft a document which will be signed by an employee who is hired on an “at-will’ basis, confirming that “at-will” understanding. This should be done even if there are no other terms of employment addressed in the written employment agreement (other than the mandatory arbitration agreement, of course.) Likewise, where the employer wishes to hire an employee for a specified period of time, that should be confirmed in a written agreement prepared by an experienced San Diego business lawyer.


There are few things more disruptive and potentially destructive to a small business than an expensive lawsuit.  Whether the dispute is internal–such as with a partner, investor, or employee–or external–with a supplier, customer, or a competitor–the expense and distraction of protracted Courtroom business litigation can be devastating.  A good San Diego business lawyer will always be looking for ways to help their client avoid disputes and litigation, and to plan for the handling of disputes and claims when they arise.  Acquiring appropriate insurance coverage, of course, is an important part of the necessary planning, and a business lawyer can help here to, although a professional insurance broker is also advisable. But in the context of potential claims by employees, one essential tool is the use of written employment agreements.

Nightmare avoided

In the example above, if the Eric had required a simple written employment agreement confirming that Mark was an “at-will” employee, and that all disputes relating to his employment would be resolved by Mandatory Arbitration, the “nightmare” for Eric’s business caused by the lawsuit could have been avoided. The employee could still have proceeded with his claims of wrongful discrimination based on medical disability and sexual orientation, of course, but he would not have been able to do so in a civil lawsuit.[1]  He would have to proceed in Mandatory Arbitration, where the expense of litigation and waste of time would be much less, and where the likelihood of a runaway adverse jury verdict, would be avoided.  Arbitrators have authority to order large monetary awards, where they find wrongdoing and damage to a plaintiff, but large awards are much less common in arbitration than in jury trials.

If you are a small business owner, don’t wait until you get sued. If you have employees, make sure they have signed employment agreements with mandatory arbitration clauses and, where appropriate, confirmation of their “at-will” status. If your small business is sued, make sure you look for a San Diego business litigation lawyer who has years of experience and is dedicated to seeking the best possible outcome in your case.  The San Diego business lawyers at Gehres Law Library can help you minimize the risk of business litigation for your company or provide quality representation in the event you are sued. Contact us or browse our website for more information.

Here is a link which provides additional information about mandatory arbitration in employment agreements:

[1]   It should be noted that Mark could still complain to a governmental agency, such as the federal Equal Opportunity Commission (EEOC), based on the alleged civil rights violations, and such governmental agencies could pursue the matter, which it does in a tiny fraction of cases filed.