California Court Finds Employment Arbitration Provision Unconscionable

Employment arbitration agreements are generally enforceable in California. However, great care is required in both the drafting and the implementation. For example, California's First District Court of Appeal (San Francisco) recently underscored this through the unconscionablity doctrine in Ajamian v. Cantor CO2e, No. A13125 (Cal.Ct. App. Feb. 16, 2012). The Court affirmed denial of an employer's petition to compel arbitration under a provision in an employment contract.

The Court of Appeal decided the provision was both procedurally and substantially unconscionable. Plaintiff, Ajamian, signed an acknowledgment at the start of her employment, referring to an online manual she had not reviewed. The manual had an arbitration agreement. Plaintiff was later promoted and signed an employment agreement with an express arbitration provision, with a clause holding plaintiff liable for the employer's attorney's fees in the event of a dispute. Plaintiff eventually sued on employment issues and the employer moved to compel arbitration. The trial court denied arbitration. The Court of Appeal agreed, finding procedural unconscionability because plaintiff had no real bargaining power and was required to sign the agreement as a condition of promotion. The non-mutual attorney fee provision was substantively unconscionable. Lastly, the language was unclear as to whether the trial court or the arbitrator should decide the validity of the agreement. Absent clear and unmistakable intent to delegate authority to the arbitrator on the validity of the agreement, the panel said the threshold decision belonged to the trial Court.

Trial courts now scrutinize arbitration agreements in detail. So, it's important to consider all potential aspects of substantive and procedural unconscionability in the drafting and implementation.