What's an Arbitration Agreement Worth If One Side "Always Wins?"

Arbitration agreement form on an office table.
By Laura Temme, Esq. on August 20, 2019 2:30 PM

Chicago-based international law firm Winston & Strawn has asked the Supreme Court to grant cert in a case involving a former partner, allegations of gender bias, and an arbitration agreement invalidated by the appellate courts in California. Former Winston & Strawn partner Constance Ramos contends the terms of the firm’s the arbitration agreement were overly harsh, including a clause she deemed the “firm always wins” provision.

Interestingly, despite the drama of a claim that “the firm always wins,” the question presented to SCOTUS is more focused on the interplay between federal arbitration laws and long-standing rules of interpretation in California.

Can the Firm “Always Win?”

A California court of appeals held that Ramos could not be forced to arbitrate her claims against Winston & Strawn due to a clause that made the entire arbitration agreement invalid – what Ramos called the “firm always wins” clause.

How can the firm always win? By prohibiting arbitrators from going against decisions made by leaders in the firm. Unless the firm leaders violated the partnership agreement itself, an arbitrator could not substitute their judgment for a partner’s judgment.

The firm disagreed with Ramos’ characterization of the provision, calling it a “partnership judgment” provision that simply kept arbitrators from second-guessing business decisions made by the partners.

The California appeals court hearing the case found removing the rule would alter the entire agreement, so it invalidated the whole thing.

Winston & Strawn petitioned for review by the Supreme Court of the United States, asking the Court to decide whether the rules used to examine the arbitration agreement are actually preempted by the Federal Arbitration Act.

Questioning Long-Standing Rules

California courts have long followed the guidance from Armendariz v. Foundation Health Psychare Services, Inc. in examining arbitration agreements. Armendariz held that an arbitration provision in an employment agreement must meet five minimal requirements to be enforceable. However, Winston & Strawn argues that the Federal Arbitration Act (FAA), which requires courts to place arbitration agreements on the same footing as other contracts, preempts the requirements laid out in Armendariz.

Six amicus briefs have been filed in support of Winston & Strawn, arguing that the requirements in Armendariz disfavor arbitration – in direct contradiction to the FAA and other California cases.

Winston & Strawn’s petition is set to be distributed for conference October 1st.

Related Resources: