California Court Rejects Unconscionable Arbitration Agreement

Martha Carbajal sued her former employer, CW Painting, for unpaid wages.  The employer moved to compel arbitration pursuant to the employment agreement Carvajal signed.  The trial court denied the motion and refused to enforce the unconscionable arbitration agreement. CW appealed, but the Fourth Appellate District agreed with the trial court.  You can read the full opinion here.

Procedurally Unconscionable Arbitration Agreement

The appellate court held the arbitration agreement was procedurally unconscionable because it was part of an adhesion contract CW Painting imposed on Carbajal as a term of her employment.  The court took particular issue with the fact that, although the arbitration provision required the parties to arbitrate their disputes under the American Arbitration Association’s (AAA) rules, the agreement did not identify which of AAA’s many different rules would apply, CW Painting did not provide Carbajal with a copy of the rules it believed applied, and CW Painting required Carbajal to sign the agreement without telling her where she could find the governing rules or giving her an opportunity to determine which rules would apply.

Substantively Unconscionable Arbitration Agreement

The court went on to find the arbitration agreement substantively unconscionable because it allowed CW Painting to obtain injunctive relief in court while requiring Carbajal to seek relief through arbitration.  The agreement also waived the statutory requirement that CW Painting post a bond or undertaking to obtain injunctive relief, and it effectively waived Carbajal’s statutory right to recover her attorney fees if she prevailed on her Labor Code claims.

The court refused to sever these unconscionable terms and enforce the remainder of the arbitration provision,and instead declared the whole contract void because multiple unconscionable terms permeated the entire agreement.

The court rejected CW Painting’s contention the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) governed the dispute because CW Painting failed to timely present  evidence that the contract with the arbitration provision had a substantial relationship to interstate commerce.

Although many courts will enforce arbitration agreements, California courts will not rubber-stamp an employer-mandated arbitration clause.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.