On Tuesday, August 17, 2015, the California Court of Appeal affirmed an order denying an employer’s motion to compel arbitration because, the Court found, the agreement was both procedurally and substantively unconscionable. Employers can and should use this case as a reminder to closely review, and if necessary revise, their arbitration agreements.
In January 2014, a former employee of Home Team Pest Defense filed a complaint alleging that she was wrongfully terminated from her position as office manager in Home Team’s Antioch office. Home Team moved to compel arbitration of her claims, based on an “Agreement to Arbitrate,” electronically signed by Plaintiff when she was first hired. Plaintiff opposed the motion, arguing that it was unenforceable because the agreement was unconscionable.
Unconscionability has a procedural and a substantive component. Procedural unconscionability focuses on the presence of oppression or surprise due to unequal bargaining power during contract formation. Substantive unconscionability focuses on whether the contract terms are unfairly one sided; however, the terms must amount to something more than “a simple old-fashioned bad bargain.” If both procedural and substantive unconscionability exist, a Court may exercise its discretion to refuse to enforce a contract or specific contract provision.
Relative to the arbitration agreement Plaintiff signed, the Appellate Court agreed with the trial court’s finding that both procedural and substantive unconscionability were present. Specifically, the lower court found that the agreement referenced a separate “Dispute Resolution Policy,” which was not provided to Plaintiff at any time during her employment. The trial court also found evidence of procedural unconscionability in that Plaintiff was told that the agreement was nonnegotiable and that if Plaintiff did not sign it, she would lose the job offer.
The Court also agreed with the trial court that the terms of the agreement itself were overly one-sided, by requiring procedures and time limitations for bringing claims that did not apply to the employer. Further, the agreement included a provision that the California Supreme Court has expressly held is substantively unconscionable: a provision imposing an obligation on the Plaintiff to pay certain fees and expenses of arbitration.
A carefully drafted and up-to-date arbitration agreement can protect an employer from costly litigation and provide an expeditious forum for resolving disputes with former workers; however, a carelessly drafted one, or one that is out of date, is likely to do much more harm than good. Employers should work with their employment counsel to ensure that their arbitration agreement is up to date, not unfairly one-sided, and that the process employed in obtaining the agreement is free from surprise or oppressive conduct.
The full decision in Carlson v. Home Team Pest Defense can be found here.
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