"Unconscionable" Arbitration Agreements Not Enforceable

March 17, 2011  |  From HRCalifornia Extra

Two women working for Award, Inc., signed independent contractor agreements, which contained arbitration agreements. When they sued the employer for gender discrimination, sexual harassment and retaliation, the company sought to enforce the arbitration agreements. The lower court found the arbitration agreements enforceable and the court of appeal disagreed.

The court of appeal noted that for an arbitration agreement to be unenforceable, it must be procedurally and substantively "unconscionable," or obviously unfair to the employee signing it. The court ruled that the arbitration agreement in this case met both requirements. Wherry v. Award, Inc., 192 Cal. App. 4th 1242 (2011)

Both plaintiffs stated that they were given an arbitration agreement and told that they had to sign the agreement to work for the company. They did not receive any information or explanation about the agreement or time to ask questions about the agreement. Also, they stated that they got only a few minutes to review and sign the agreement and never received a copy of the signed agreement.

The agreements were pre-printed forms, with no indication of negotiated terms and conditions of employment or compensation specific to the employees being asked to sign them. The court rejected the employer’s claim that the agreements were actually negotiated with the employees, and ruled that the agreements were presented to the employees as "take it or leave it."

The court ruled that the agreements were "unconscionable" because the structure of the agreements included several errors:

  • There were no discovery provisions
  • The plaintiffs were subject to fees prohibited by the Fair Employment and Housing Act (FEHA)
  • The statute of limitations under the agreement was less than that allowed by law

Prior case law makes it clear that arbitration agreements cannot violate an individual's rights under FEHA. Arbitration agreements must meet certain standards set by prior cases, including:

  • A neutral arbitrator
  • Sufficient discovery
  • A written decision by the arbitrator
  • All remedies available in a judicial action
  • No requirement that the plaintiff pay unreasonable costs or fees

The employer asked that the court remove the unenforceable provisions of the arbitration agreement and enforce the rest of the agreements' provisions. The court refused to do so, finding that because the agreements were so unfair; any reform of the agreement would be beyond the court's authority. ​​​​​​​