A recently published case from California’s Court of Appeal underscores the continuing vitality of the state’s unconscionability doctrine, despite the “strong public policy favoring arbitration.” Ajamian v. CantorCO2e, No. A131025 (Cal. Ct. App. Feb. 16, 2012) (available here). In Ajamian, a unanimous panel of the First Appellate District considered the arbitration provision in an employment contract and concluded that “the provision was procedurally unconscionable and substantively unconscionable in more than one respect, such that the [trial] court did not abuse its discretion in concluding that the provision could not be saved by severing the offending terms.” Slip. op at 1-2.
The Ajamian plaintiff had signed an acknowledgement form presented to her at the start of her employment, which made reference to an online compliance manual that she had not reviewed. Slip op. at 2. The manual contained an arbitration agreement. Slip op. at 2. Later, the plaintiff received a promotion, at which point the defendant required her to sign an employment agreement containing an express arbitration provision. Slip op. at 3-5. The employment agreement also contained a clause stating that the plaintiff would potentially be liable for the defendant’s attorney fees. Slip op. at 4. When the plaintiff sued the defendant for issues arising out of her employment, the defendant sought to enforce the arbitration agreement. Slip op. at 6.
In a decision authored by Judge Needham, the Court of Appeal found that the trial court, not the arbitrator, properly decided the enforceability of the at-issue arbitration provision. Slip. op. at 8-10. The panel also concluded that the provision was procedurally unconscionable, as the plaintiff “had no realistic bargaining power and was required to sign the Employment Agreement to receive her promised compensation—for work she had already performed. Furthermore, the Employment Agreement was not the subject of any negotiation.” Slip op. at 26. Likewise, the panel found that the agreement was substantively unconscionable, because the plaintiff was required to relinquish certain unwaivable statutory damages and remedies. Slip op. at 28-31. Further, the non-mutual attorneys’ fees provision, whereby the plaintiff but not the defendant would potentially pay prevailing party fees, was substantively unconscionable. Slip op. at 31.
The plaintiff is now expected to pursue her claims against the defendant in San Francisco County Superior Court before the Hon. Peter J. Busch.