Court Finds Agreement Unconscionable
The Court determined that “there is really no question that the arbitration agreement is procedurally unconscionable in that it is a contract of adhesion.” It found significant that the agreement was in a handbook with other policies and employees were required to sign the handbook acknowledgement as a condition of employment and could not negotiate any terms. Also significant to the Court’s finding of procedural unconscionability was the absence of the American Arbitration Association Rules in the handbook. The Court said it was oppressive to require an employee to “make an independent inquiry to find the applicable rules in order to fully understand what she was about to sign.”
The Court also determined the agreement was substantively unconscionable. It found significant and “indisputably one-sided and unfairly prejudicial” that the agreement applied only to claims that could be brought by an employee, such as anti-discrimination claims, imposed time limits on the employee, but not the employer, and if the employee failed to comply with those limits, she would forfeit her claim.
Because it found the arbitration agreement to be “a contract of adhesion” that failed to give adequate notice of the applicable arbitration rules and allowed Inland a full range of remedies and forums, while limiting Zullo to binding arbitration, the Court concluded that the arbitration agreement was unconscionable and ordered the trial court to vacate its order compelling arbitration.
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This case warns California employers of overreaching when drafting arbitration agreements. Although California courts are hostile to enforcing arbitration agreements generally, they will do so if the agreement is not overly one-sided and harsh. The agreement in this case was not sufficiently limited and failed to provide the employee with all of the information necessary to knowingly agree to arbitration.
For additional information regarding this case or assistance in drafting arbitration agreements in California, please contact the Jackson Lewis attorney with whom you regularly work.