Labor & Employment Law Daily Arbitration agreement found unconscionable by California high court will not get another look by SCOTUS
Thursday, June 11, 2020

Arbitration agreement found unconscionable by California high court will not get another look by SCOTUS

By Pamela Wolf, J.D.

The petitioner contends the ruling below “is plainly inconsistent” with U.S. Supreme Court decisions “holding that the FAA preempts any state rule that does not place arbitration agreements on an ‘equal footing’ with other agreements.”

On June 8, the U.S. Supreme Court denied the certiorari petition of a car dealership seeking review of a divided California Supreme Court decision that rendered the dealership’s arbitration agreement with a service technician unenforceable. “[T]he California Supreme Court once again thumbed its nose at the Federal Arbitration Act and this Court, ignoring the Court’s clear and repeated mandates that the FAA preempts state rules that discriminate against arbitration,” as the dealership put it in its petition.

Must sign immediately. In January 2010, the employee was hired as a service technician by an automobile dealership. Three years later, a HR employee approached his workstation and asked him to sign several documents, as the California high court recounted in OTO, L.L.C. v. Kho . He was required to sign the documents immediately and return then to the HR employee, who waited at his workstation. The employee’s first language was Chinese. He had no opportunity to read the documents and the contents were not explained to him. Moreover, he was not given copies of the documents in either language.

California Supreme Court ruling. In view of the oppressive circumstances in which the employee entered into the arbitration agreement, the agreement was unconscionable, rendering it unenforceable, the state high court concluded. The ultimate question was whether the employee, through oppression or surprise, was coerced or misled into making an unfair bargain. Moreover, the substantive fairness of this particular agreement must be considered in terms of what the employee gave up and what he received in return. Here, by signing the agreement, the employee surrendered the full panoply of Berman procedures (a streamlined administrative proceeding) and assistance from the Commissioner of Labor. In return, he got a highly structured arbitration process that closely resembled civil litigation—if he could figure out how to avail himself of its benefits and avoid its pitfalls, the divided court held.

What about the FAA? In its petition, the dealership accused the California Supreme Court of once again thumbing its nose at the FAA and the highest court in the land. “In this case, the California Supreme Court declined to enforce a contract to arbitrate wage disputes based on a substantive unconscionability rule applicable only to such arbitration agreements: the court deemed the arbitration agreement substantively unconscionable because the contemplated arbitration procedures, which had many of the protections of civil litigation, were not as streamlined as the administrative proceeding that would be available under state law in the absence of the agreement,” as the dealership sees it. “That result—like others emanating from the California Supreme Court in recent years—is plainly inconsistent with this Court’s decisions holding that the FAA preempts any state rule that does not place arbitration agreements on an “equal footing” with other agreements.”

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