By Ronald Miller, J.D.
Language in an arbitration agreement stating that, in the event a claim proceeds to arbitration, the parties are authorized to seek preliminary injunctive relief in the superior court, did not render the agreement unconscionable as unreasonably favoring the employer, ruled the California Supreme Court. Rather, the state high court concluded that the clause did no more than restate existing law, Code Civ. Proc., Section 1281.8, subd. (b), which expressly permits parties to an arbitration to seek preliminary injunctive relief during the pendency of the arbitration. Finding no other basis to support an employee’s claim of unconscionability, the judgment of the appeals court was affirmed (Baltazar v. Forever 21, Inc.
, March 28, 2016, Kruger, L.).
As a condition of her employment, the employee signed an agreement to resolve any employment-related disputes by arbitration. The agreement provided that, in the event a claim proceeds to arbitration, the parties are authorized to seek preliminary injunctive relief in the superior court. After the employee resigned, she filed suit alleging that during the course of her employment she suffered verbal and physical harassment, race and sex discrimination, and retaliation, all in violation of California law. The employer filed a motion to compel arbitration under the terms of the agreement. The employee argued that the arbitration agreement was unconscionable and therefore unenforceable.
Agreeing with the employee, the trial court denied the motion to compel arbitration. Specifically, the trial court found that the agreement was procedurally unconscionable because of the parties’ unequal bargaining power. It explained that the employer had required the employee to sign the agreement, without modification, as a condition of employment. The trial court also found that the agreement was substantively unconscionable. The appeals court reversed. While it agreed with the trial court’s conclusion that the agreement was "oppressive and procedurally unconscionable," it disagreed with the conclusion that the agreement was substantively unconscionable. Thereafter, the employee was granted a petition for review by the state’s high court.
After reviewing the general principles of unconscionability, the California Supreme Court turned to consider the circumstances surrounding the arbitration agreement in this case. It noted that while the appeals court agreed that the agreement was a contract of adhesion, because it was it written on a preprinted form and offered on a take-it-or-leave-it basis, the lower court concluded that there was no element of surprise. The employee not only knew about the arbitration agreement, but she initially sought to avoid it. Nor was there any oppression or sharp practices on the part of the employer. The employee was not lied to, placed under duress, or otherwise manipulated into signing the arbitration agreement.
Still, the employee asserted before the high court that a somewhat greater degree of procedural unconscionability was present here—warranting closer scrutiny of the substantive fairness of the agreement‘s terms—because the employer did not provide her a with a copy of the AAA‘s rules for arbitration of employment disputes, which governed any arbitration between the parties. Here, the court observed that the employee’s challenge to the enforcement of the agreement had nothing to do with the AAA rules; rather her challenge concerned only matters that were clearly delineated in the agreement she signed. Therefore, the employer’s failure to attach the AAA rules did not affect consideration of the employee’s claims of substantive unconscionability.
The employee raised three claims of substantive unconscionability: (1) the arbitration agreement allowed the parties to seek a temporary restraining order or preliminary injunctive relief in the superior court; (2) the agreement was unfairly one-sided; and (3) it provided that, in the course of arbitration, all necessary steps will be taken to protect from public disclosure of the employer’s trade secrets and proprietary and confidential information.
Provisional relief clause.
The state high court was unpersuaded by the employee’s argument that the arbitration agreement’s express reference to the employer’s interest in protecting trade secrets and other confidential information during the pendency of arbitration meant that the provisional relief clause would likely favor the employer, rather than its employees. Even accepting the argument that employers are more likely than employees to seek provisional relief, the court pointed out that the clause did no more than recite the procedural protections already secured by Section 1281.8(b). The wording of the clause makes clear that it merely confirms, rather than expands, rights available to the parties under that code section. An arbitration agreement is not substantively unconscionable simply because it confirms the parties’ ability to invoke undisputed statutory rights.
Next, the employee argued that the arbitration agreement was unfairly one-sided because it listed only employee claims as examples of the types of claims that are subject to arbitration. The high court disagreed with the employer’s contention that this provision made clear that the kinds of claims typically brought by employees are all subject to arbitration, but it leaves in doubt whether the kinds of claims employers typically bring are also subject to arbitration, thus allowing the employer to litigate that issue when it brings a claim. The court pointed out that the arbitration agreement made clear that the parties mutually agreed to arbitrate all employment-related claims, and clearly covered claims an employer might bring as well. The examples did not alter the substantive scope of the agreement, nor did they render the agreement sufficiently unfair as to make its enforcement unconscionable.
Finally, the employee argued that the agreement was unduly one-sided because it provided that, in the course of arbitration, "all necessary steps will be taken to protect from public disclosure" the employer’s trade secrets and proprietary and confidential information. The employee contended that because the agreement did not define "all necessary steps" nor specified what constitutes "proprietary and confidential information," it unfairly demanded that employees take whatever steps the employer deemed "necessary." However, the high court concluded that she misread the confidentiality provision. Nothing in the agreement indicated that an employee must accede to any and all demands the employer might make for the protection of confidential and proprietary information. Thus, the court disagreed that the confidentiality provision rendered the arbitration agreement unduly harsh or one-sided.