On February 26, 2016, the California Court of Appeal, Fourth District, issued its decision in Carbajal v. CWPSC, Inc., invalidating an employment arbitration agreement due to a number of provisions the Court considered problematic. The Carbajal decision may signal that the tide is again changing in California, and courts may be more likely to refuse to enforce employment arbitration agreements on the basis of procedural or substantive unconscionability.
For many years, courts in California routinely found employment arbitration agreements to be unconscionable. In more recent years, however, courts have looked upon such agreements more favorably, in large part due to two key decisions— AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 321 and Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348– which expressed a public policy in favor of arbitration. The Carbajal case may be an indication that another shift is upon us, where courts will again closely scrutinize provisions in employment arbitration agreements, and refuse to enforce agreements that are unfair.
In Carbajal, the Court found the parties’ arbitration agreement was procedurally unconscionable because the contract was one of adhesion, meaning it was a “take it or leave it” agreement that was imposed on Carbajal as a term of her employment without an opportunity to negotiate its terms. The Court declared the agreement substantively unconscionable because of its unilateral injunctive relief clause which allowed CWPSC to seek injunctive relief in court without having to post a bond, but required Carbajal to arbitrate all her claims. The Court also found the provision of the agreement stating the rules of the American Arbitration Association (“AAA”) would govern the arbitration process was substantively unconscionable because it did not identify which specific AAA rules would apply or where Carbajal could find those rules. Finally, the Court found that the provision waiving Carbajal’s statutory right to recover her attorney fees if she prevailed on her Labor Code claim was substantively unconscionable. The Court upheld the lower court’s decision invalidating the agreement as a whole, rather than severing the offending provisions, because it found the “arbitration provision was permeated with unconscionability.”
While it is yet to be seen whether Carbajal is a signal that another change is upon us, the decision nevertheless highlights important considerations for employers drafting employment arbitration agreements:
- Because most employment arbitration agreements are contracts of adhesion— employees are required to sign the agreement as a condition of employment without an opportunity for bargaining—employers should take care to ensure the individual provisions contained therein are mutually fair and carefully drafted.
- Identify the specific rules that will govern the arbitration (i.e., American Arbitration Association Employment Arbitration Rules) and state where employees can view the rules (i.e. www.adr.org/rules or “see Human Resources to view a copy of these rules”).
- All restrictions and benefits in the agreement should be mutual. Particularly avoid including unilateral terms that restrict only the employee or provide benefits only to the employer.
- Do not include provisions attempting to revoke the employee’s statutory rights or remedies, such as the right to recover attorney’s fees.
Whatever the future may hold for employment arbitration agreements in California, employers should take care in drafting such agreements. Each provision in the agreement should be reviewed for enforceability, so as to avoid potential invalidation of the entire agreement.
Hilary Weddell is an attorney with McManis Faulkner whose practice focuses on employment law.