Unconscionable Forced Arbitration Agreements Unlawful

In a non-Union workplace, a “forced arbitration agreement” is a contract an employer requires a worker to sign as a condition of employment.  These contracts force employees to arbitrate their legal disputes with their employers.  Forced arbitration agreements therefore require an employee to sign away her right to sue her boss in court in exchange for getting a  job.  Forced arbitration agreements are not the same as Labor arbitration agreements, in which unions and employers have mutually agreed to submit their disputes to an arbitrator.  Instead, forced arbitration agreements are imposed on non-union employees by employers.  Forced arbitration agreements are harmful to workers’ rights:  without the protections of the court and without the power of a Union, non-union employees in arbitration are much weaker than their employer.

California courts will generally enforce forced arbitration agreements unless they are so unfair as to be “unconscionable.”  But the Supreme Court of the United States has attacked California’s limited efforts to reign in forced arbitration agreements.  In AT&T Mobility v. Concepcion (2011), the Supreme Court of the United States invalidated a California law that prohibited arbitration agreements that do not allow arbitration on a class basis (the arbitration equivalent of a class action).  Concepcion created concern that state law could no longer protect employees from even the most unfair of forced arbitration agreements.

Fortunately, Samaniega v. Empire Today, LLC (California Court of Appeal, 2012) reaffirms that California law protects employees from “unconscionable” arbitration agreements.  In Samaniega, “independent contractors” argued that they were misclassified, and sued their employer for violations of the California Labor Code.  But the employees had to overcome a hurdle before the court would hear their claims.  Upon hiring, the employer had required employees who read little or no English to sign an 11-page, single-spaced “Subcontractor” agreement with an arbitration provision.  The employer gave the employees little or no time to review the agreement, and refused to provide a Spanish translation of the document.  The arbitration provision also shortened the statute of limitations for bringing claims against the employer.  The employer did not provide the employees with a copy of the agreement, nor would the employer give the employees a copy of the rules that would apply to arbitration.  The arbitration agreement even required employees to pay the employer’s attorney’s fees, if the employees were unsuccessful in arbitration; the employer, however, was not obligated to pay the employees’ attorney’s fees if the employer was unsuccessful in arbitration.

Based on these facts, the California Court of Appeals ruled that the arbitration agreement was “unconscionable,” or so unfair that the court would not enforce the agreement.  First, the court concluded that the process by which the “agreement” was reached was extremely flawed; there was no negotiation between the parties, and the employees had no meaningful choice whether or not to accept.  And second, the court concluded that the terms of the agreement itself were so one-sided in favor of the employer as to be unreasonable.  The court refused to enforce the forced arbitration agreement.

Samaniega shows that California law still offers limited protections against “unconscionable” forced arbitration agreements.

Sean D. Graham

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