In a decision yesterday, the Supreme Court holds that “when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded” by the Federal Arbitration Act and its national policy favoring resolution of disputes by arbitration. In this case a commercial contract between TV personality “Judge Alex” Ferrer and his attorney/agent included a broad arbitration clause. When the agent sought arbitration to enforce contract compensation claims, Ferrer attempted to avoid arbitration by petitioning the California Labor Commissioner for a determination that the subject contract was unenforceable under California Labor Code provisions regulating talent agents. The Supreme Court ruled that the strong federal policy for arbitration empowers a contractual arbitration clause to sidestep the primary jurisdiction of the administrative agency under state law, reversing California court rulings to the contrary. (Preston v. Ferrer, U.S. Supreme Court No. 06-1463, 552 U.S. ____ (2008)). This latest arbitration-friendly decision follows the Supreme Court’s prior decision that, when parties agree to arbitrate all disputes arising under their contract, questions concerning the validity of the entire contract itself are to be resolved by the arbitrator in the first instance, not by a federal or state court (Buckeye Check Cashing, Inc., v. Cardegna, 546 U.S. 440 (2006)).
The combination of the Preston and Buckeye Supreme Court rulings should strongly reinforce arbitration agreements against efforts to litigate in state courts, though California decisions have often been hostile to consumer arbitration agreements. Left unsettled for the moment is whether yesterday’s ruling in Preston will apply specifically to compel agreed arbitration of employee-employer disputes, although it is encouraging from the employer standpoint that the Preston decision compels arbitration of Labor Code issues which would otherwise be within the primary jurisdiction of the California Labor Commissioner. Meanwhile, a recent California Court of Appeals decision explicitly confirms that at minimum, in order for an employer to enforce an arbitration policy against an employee, the employer must produce an arbitration document signed by the employee, rather than merely claiming that the arbitration policy was stated in the handbook given to all employees. (Mitri v. Arnel Management Company, California Court of Appeal No. G038003, December 12, 2007).