Quick Take
- Arbitration agreements can help California restaurant operators limit class-action exposure.
- Michael Adreani says restaurant employers should generally have arbitration agreements in place when employees are hired.
- Individual arbitration can become expensive because employers usually pay the administrative and arbitrator fees.
- Operators should review agreements regularly with counsel and decide whether to enforce them case by case.
Restaurant operators often hear arbitration agreements described as a simple protection against employment litigation.
In the latest Self-Insurance Podcast episode, attorney Michael Adreani, partner at Roxborough, Pomerance, Nye & Adreani, gives a more useful answer.
Arbitration agreements still matter, especially for class-action risk. They can also create costs if employers use them automatically. Operators need to understand when an agreement can help, when it may create new costs, and how the decision changes when PAGA or class-action allegations are involved.
This episode builds on CRMBC’s recent PAGA coverage, but it shifts the focus from reform itself to one practical question for employers: when does an arbitration agreement help, and when can it create added cost?
Why Arbitration Agreements Matter
Michael defines arbitration as a private agreement to litigate disputes outside the public court system. In employment cases, that usually means a paid arbitrator or arbitration service handles the dispute instead of a judge or jury.
For employers, the main business reason is class-action exposure. Michael says arbitration agreements can help avoid “the dreaded class action.”
Class actions can create large, expensive, multi-employee disputes for restaurant operators. In Michael’s view, a valid arbitration agreement can require an employee to bring individual claims and usually give up representative class-action claims.
His recommendation on whether restaurant employers should have arbitration agreements is direct: “They should all have them.” He adds that, “for nothing else,” they provide protection against class actions.
For operators with multiple locations, changing schedules, hourly workers, and detailed wage-and-hour obligations, that protection is not theoretical. A dispute that begins with one employee can become far more serious if it turns into a class action.
The Cost Trade-off Operators Should Understand
The part operators may not expect is the cost. Many employers assume arbitration is always cheaper than court. Michael does not treat it that way. He explains that arbitration should generally save money in a class-action situation. In an individual case, he is much more cautious.
“I do not always recommend using the arbitration agreement in response to a lawsuit by an individual,” he says, because arbitration can be “extremely expensive.”
Michael explains why. Arbitration services and arbitrators must be paid. In employment arbitration, the employer usually pays the full cost.
“In employment, that’s not the case. The employer pays the entire cost.”
– Michael Adreani
That changes the decision. Michael says an employer may be paying AAA, JAMS, or a similar service “six figures before you know it,” even in an individual case. His advice is to “pick and choose” which cases belong in arbitration.
For restaurant operators, the point is practical. An arbitration agreement is a tool. It still needs a case-by-case decision with counsel.
When Michael Says to Use Arbitration
Michael draws a clear line between class actions and many individual cases.
If the threat or lawsuit is a class action, he says the employer would want to enforce the arbitration agreement. In that situation, the business would typically file a motion to compel arbitration. Michael says courts are generally willing to uphold properly drafted arbitration agreements.
PAGA is more complicated. Michael explains that, after the June 2024 reforms, arbitration may help narrow a PAGA case if the employer can show the plaintiff did not personally suffer all of the violations being claimed.
For restaurant operators, the point is practical: arbitration may help narrow some claims, but the value depends on the facts, the records, and the legal strategy.
Michael also discusses the Leeper case, which he describes as pending before the California Supreme Court. In the podcast, he explains that the case may affect whether a plaintiff who loses individual claims in arbitration can still return to court as a representative PAGA plaintiff. Michael believes the better outcome for employers would be that a plaintiff who loses individual claims also loses standing to represent others.
That is a legal issue for counsel to track. For restaurant operators, the business lesson is simpler: arbitration agreements should not sit forgotten in an onboarding file. They need to be reviewed, updated, and understood before a claim arrives.
Why Individual Arbitration May Be the Wrong Move
Michael is especially cautious about using arbitration in individual lawsuits.
He says he often prefers the court process for individual claims because courts move more slowly and cost less upfront. That gives employers time to develop defenses and avoids paying the full arbitration bill unless arbitration serves a clear purpose.
There are exceptions. Michael says arbitration may be useful in an individual case involving sensitive information, emotional facts, potential jury risk, or facts that could create concern about a runaway jury.
That distinction matters for restaurant operators because the same agreement can be valuable in one case and expensive in another.
What Restaurant Operators Should Do Now
The practical takeaway starts before there is a dispute.
Michael says employers should have arbitration agreements, but they also need to keep them current. Employment law changes, and agreements should be reviewed with counsel every couple of years. He gives one example: federal law now limits enforcement of predispute arbitration agreements for sexual harassment and sexual assault claims when the person alleging the conduct elects to avoid arbitration.
He also returns to the same operating discipline that appears across CRMBC’s litigation content: documentation.
Restaurant operators should treat arbitration agreements as active legal tools that need review before a dispute arises. An agreement provides value only when it is current, enforceable, and used with a clear understanding of cost and legal strategy. For restaurant operators, that means reviewing the agreement before there is a dispute and getting counsel involved before deciding whether to compel arbitration.
FAQ
What is an arbitration agreement in employment?
Michael describes arbitration as a private agreement to litigate employment disputes outside the public court system, usually before a paid arbitrator or arbitration service.
Should restaurant operators have arbitration agreements?
Michael’s recommendation is yes. He says employers should have them for employees because they can protect against class-action exposure.
Is arbitration always cheaper than court?
No. Michael says arbitration can save money in class-action situations, but individual arbitration can be expensive because the employer pays the full cost.
How does arbitration connect to PAGA?
Michael explains that, after the 2024 PAGA reforms, arbitration may help narrow some PAGA claims if the plaintiff did not personally experience all alleged violations. Operators should discuss specific claims with counsel.
Watch or listen to the full episode
Kaya Stanley and Michael Adreani discuss arbitration agreements, class-action exposure, PAGA after reform, the cost of employment arbitration, and what restaurant operators should review with counsel.
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