California First-Year Law Students' Exam (Baby Bar) — MCContractsEasy
A software company hires a new programmer. The employment contract includes a clause stating that 'any dispute arising out of or relating to this agreement shall be settled by arbitration in accordance with the rules of the American Arbitration Association.' After six months, a dispute arises regarding unpaid bonuses. The programmer files a lawsuit in state court. How should the court likely respond?
- AAllow the lawsuit to proceed, but only after a mandatory mediation attempt.
- BProceed with the lawsuit, as employees cannot be forced into arbitration.
- CDismiss the lawsuit and compel the parties to arbitration.
- DStay the lawsuit pending the outcome of a separate administrative review.
Show answer & explanationAnswer & explanation
Correct answer: C. Dismiss the lawsuit and compel the parties to arbitration.
A valid arbitration clause requires parties to resolve disputes through arbitration rather than litigation. Courts generally uphold these clauses, dismissing or staying lawsuits and compelling arbitration, especially in employment contexts under federal and state arbitration acts.
Why the other options are wrong
- A. Mediation is a separate dispute resolution method and is not automatically substituted for arbitration when an arbitration clause exists.
- B. Generally, valid arbitration clauses are enforceable against employees unless specific exceptions apply (not indicated here).
- D. Administrative review is not the standard response to a valid arbitration clause; compelling arbitration is.
Arbitration Clause Enforceability
A contractual provision requiring parties to submit disputes to binding arbitration rather than litigation. Courts generally enforce these clauses, compelling parties to arbitration if the clause is valid.
- Mandates out-of-court dispute resolution.
- Favored by federal and state law (e.g., Federal Arbitration Act).
- Courts will typically compel arbitration if the clause is valid.
- Must be clear and unambiguous.
Memory trick: Clauses are the contract's building blocks, defining rights and duties.