Update on Enforceability of Mandatory Arbitration Clauses in the Context of Employment Law
While arbitration successfully reduced lengthy litigation and enabled employers to avoid unpredictable juries, in recent years the doctrine of unconscionability has placed potential limitations on the enforceability of arbitration agreements. Forcing an employee to sign an arbitration agreement may render it procedurally unconscionable. Employers have responded by allowing the employee to “opt out” of the agreement. While the 9th Circuit Court of appeals has repeatedly upheld arbitration agreements as long as the employee had a meaningful opportunity to “opt out,” a recent California Supreme Court ruling has confused this issue by refusing to enforce an arbitration agreement despite the employee’s ability to “opt out.” Gentry v. Superior Court, 42 al. 4th 443 (2007).
The Gentry Court also blurred the distinction between procedural and substantive unconscionability. Pursuant to Gentry, an employer should provide the employee with the choice to accept or reject the arbitration agreement without overt or subtle pressure and, if the employee accepts the agreement, require the employee to affirmatively “opt in” (i.e. to sign it). Further, because Gentry blurs the line between procedural and substantive unconscionability, the employer must be sure to remove all unfair provisions or the court may not enforce the arbitration agreement at all, $even if the employee has opted in.
A recent California Court of Appeal decision held an arbitration agreement unconscionable, despite a provision providing the arbitrator the exclusive authority to determine enforceability of the arbitration agreement. Ontiveros v. DHL Express (USA) Inc., C.A. 1st/2 No. A114848, June 30, 2008. A t the time employee Gina Ontiveros was hired by Airbourne Express, she was provided with a binder of employment materials which included an arbitration agreement. She was advised she needed to sign it in order to start her new position, but was not provided any real time to review the documents she was provided or signed. The arbitration agreement provided that it covered all claims between the parties and that she gave her right to a jury trial.
Airbourne Express was subsequently acquired by DHL Express Inc., and Ontiveros remained an employee of DHL Express. Ontiveros filed a complaint for sexual harassment in 2005. DHL filed a motion to compel arbitration, but the trial court denied it holding that the arbitration agreement was unenforceable because, inter alia, the clause providing that the arbitrator must decide disputes relating to applicability, enforceability or formation of the agreement is not sufficient to require the Court to compel arbitration if the contract is unconscionable. The Trial Court found that it is required, as a threshold issue, to determine whether the arbitration contract is unconscionable, despite any provision requiring arbitration of issues relating to enforceability. The Trial Court then held that the agreement was unconscionable because the employee did not even know she had signed an arbitration agreement until after she filed suit and, further, the agreement was an adhesion contract in that the employee did not have the opportunity to review it or negotiate it.
The California Court of Appeals affirmed, stating that the reasoning and holding of the court, in Bruni v. Dideon, 160 Cal. App. 4th 1272 (2008) and Murphy v. Check ‘n Go of California, Inc., 156 Cal. App. 4th 138 (2007), supports the Trial Court’s conclusion that it had the authority to determine the unconscionability issues raised by the employee. The Court of Appeal also affirmed the trial court’s ruling that the arbitration agreement was unconscionable. Ontiveros v. DHL Express (USA) Inc., C.A. 1st/2 No. A114848, June 30, 2008.
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