Arbitration Clause Held Unconscionable by Court of Appeal

In the caseMayers v. Volt Management Plaintiff Stephen Michael Mayers filed a lawsuit against his former employer, Volt Management Corp., and its parent corporation, Volt Information Sciences, Inc., alleging several claims under the California Fair Employment and Housing Act.

Defendant filed a motion to compel arbitration because Plaintiff had signed an agreement, which was required for employment with Defendant, which stated that Plaintiff agreed to submit employment related claims to binding arbitration. The trial court denied the motion, reasoning that the arbitration agreement was unconscionable.

Defendant argued the trial court erred because the arbitration provisions were enforceable and did not contain any unconscionable elements. Defendant further argued that, in any event, the trial court should have just severed any improper provisions and still ordered arbitration.

The California Court of Appeal affirmed the trial court’s decision against the Defendant.

The Court of Appeal reasoned that the arbitration provisions contained in the employment application, employment agreement, and employee handbook each required that plaintiff submit employment related claims to arbitration pursuant to the “applicable rules of the American Arbitration Association in the state” where plaintiff was employed or was last employed by defendant. Plaintiff was not provided with a copy of the controlling American Arbitration Association (AAA) rules or advised as to how he could find or review them.

The agreement terms also failed to identify which set of rules promulgated by the AAA would apply.

The agreement in question further stated that the “arbitrator shall be entitled to award reasonable attorney’s fees and costs to the prevailing party.” The Court of Appeal reasoned that such a “prevailing party attorney fees” term exposed plaintiff to a greater risk of being liable to defendant for attorney fees than he would have been had he pursued his FEHA claims in court.

Based on well established authority, the Court of Appeal determined that the arbitration provisions were unconscionable and therefore unenforceable. Because the unconscionable terms could not be severed from the rest of the arbitration provisions, the Court of Appeal held that Plaintiff could not be compelled to arbitrate his claims against Defendant.

This is a very positive case in challenging arbitration agreements in court and advancing employee rights. If you are looking for information regarding an arbitration you signed with your employer, contact Lara & Luna APC.