Pre-Dispute Jury Waiver Agreement Unenforceable Under California Law
February 10, 2004

Summary

In a case that may affect how employers structure arbitration and other alternative dispute resolution agreements, the California Court of Appeal has ruled that pre-dispute jury waiver agreements are not enforceable under California law. (Grafton Partners v. Superior Court, February 6, 2004.)

Details

Grafton Partners retained PricewaterhouseCoopers (“PwC”) to provide accounting services. PwC’s standard retainer agreement provided: “ In the unlikely event that differences concerning PwC’s services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense of both parties, the parties agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to PwC’s services and fees for this engagement.”

A dispute arose, and Grafton Partners sued PwC. When Grafton Partners demanded a jury trial, PwC objected based on the pre-dispute jury trial waiver. The trial court agreed with PwC and ruled that Grafton Partners waived its right to a jury trial. On appeal, however, the Court of Appeal reversed the trial court's ruling, and held that in the absence of specific statutory authorization, pre-dispute jury waivers are not enforceable under California law.

This is a surprising decision, because the Court of Appeal declined to follow another Court of Appeal decision on the same issue. In reaching its conclusion in this case, the Court relied on a provision in the California constitution providing that the right to a civil jury trial may be waived only as prescribed by the Legislature. The Court stated that this rule must be applied even if the interests of the parties and the courts would benefit from a relaxation of this requirement. The lone California statute authorizing the waiver of a jury trial in a civil proceeding provides that only parties to a pending lawsuit may waive a jury trial and does not contemplate the enforcement of a contractual pre-dispute jury waiver. Accordingly, there is no existing California statute that authorizes the enforcement of pre-dispute jury waivers.

What This Means

First, it is important to understand that this decision does not undermine the enforceability of pre-dispute arbitration agreements. This is because the jury trial waiver inherent in any arbitration agreement is specifically permitted by the California Arbitration Act, as well as the Federal Arbitration Act.

However, this decision can affect California employers in two ways. First, many arbitration agreements contain provisions stating that if the arbitration agreement is found to be unenforceable, then the parties waive their right to a jury trial. Such provisions are now of questionable value.

Second, some employers have pursued pre-dispute jury waivers instead of arbitration agreements as a way of avoiding some of the costs and risks associated with jury trials without having to comply with California's strict rules regarding arbitration agreements. Indeed, the Court of Appeal recognized that good policy arguments can be made to support pre-dispute jury waivers in the employment context, and permitting pre-dispute jury waivers can be an attractive middle ground between jury trials and arbitration. However, based on the Court's decision, it appears that the California legislature will have to specifically validate these pre-dispute jury waivers before the courts will enforce them.

If you have any questions about this or any other topic, please contact Fred Plevin or Mike Minguet at (619) 237-5200 at Paul, Plevin, Sullivan & Connaughton.

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