9th Cir. Shuts Down Finish Line’s Attempt to Arbitrate Pregnancy Suit

In an unpublished decision, the Ninth Circuit Court of Appeals recently determined that The Finish Line, Inc., an athletic retailer, cannot arbitrate a former associate’s pregnancy discrimination claim, finding the company’s arbitration agreement to be both procedurally and substantively unconscionable. Capili v. The Finish Line, Inc., No. 15-16657 (9th Cir. July 3, 2017) (slip op. available here).

Capili alleges that she was fired by the company because she took a leave of absence to manage her pregnancy-related health issues. Upon hire in 2013, Capili was required to sign an arbitration agreement that required her to arbitrate any future employment-related disputes with Finish Line. On July 22, 2015, U.S. District Court Judge Haywood S. Gilliam denied Finish Line’s motion to compel arbitration in the suit, finding the cost-sharing provision in Finish Line’s arbitration agreement unconscionable. Capili v. The Finish Line, Inc., No. 3:15-cv-01158-HSG (N.D. Cal. July 22, 2015). The defendant appealed this decision. On July 3, 2017, the Ninth Circuit affirmed Judge Gilliam’s order.

Under the agreement, the plaintiff, a retail employee earning $15 per hour, would have to pay up to $10,000 at the outset of arbitration, not including fees and costs for legal representation—a provision that the three-judge panel found to be “substantively unconscionable.” The court determined that the provision imposes substantial non-recoverable costs on entry-level employees just to get their foot in the door in arbitration, essentially foreclosing vindication of employees’ rights. Slip op. at 3.

The court further concluded that the arbitration agreement allowed the company, but not Capili, to seek judicial resolution of certain claims, another provision that the panel found unconscionable. While judicial carveouts alone are not necessarily unconscionable, “exemptions must still have a modicum of bilaterality,” the panel stated. Slip op. at 3-4. While Capili acknowledged that her claims fell under the scope of Finish Line’s arbitration agreement, the plaintiff argued that the agreement itself was “an unenforceable contract of adhesion” and both procedurally and substantively unconscionable. The Ninth Circuit panel agreed, determining the agreement was “adhesive” because it was offered “on essentially a ‘take it or leave it’ basis.” Id. at 2-3.

While both elements of procedural and substantive unconscionability must be present for the court to find unconscionability, they need not be present in the same degree. Slip op. at 2. And while the Federal Arbitration Act endorses the enforcement of arbitration agreements, “employers may not stack the deck unconscionability in their favor to discourage claims.” Id. at 5. Thus, the Ninth Circuit affirmed, holding that the lower court had properly denied the employer’s motion to compel arbitration.

Authored by:
Natalie Torbati, Associate
CAPSTONE LAW APC