Martin Lane sued his former employer Francis Capital Management (FCM) for failure to pay him a bonus, various unfair labor practices, including unpaid overtime wages and unpaid meal periods, and the termination of his employment.  FCM moved to compel arbitration for each cause of action in the complaint and submitted a copy of the arbitration agreement Lane signed in January 2008.  Lane opposed the motion, arguing that his statutory Labor Code violation claims were not subject to arbitration.  He also argued the agreement was both procedurally and substantively unconscionable.  The trial court denied FCM's motion to compel arbitration and FCM appealed.

Section 229 of the Labor Code states that actions to enforce claims for unpaid wages under that section of the Code can be brought in court despite an agreement to arbitrate.  The court here ruled that only Lane's third cause of action, for failure to pay wages, is covered by section 229 and thus can be brought in court.  The claim regarding meal and rest breaks is not a claim for unpaid wages, but rather for denial of break periods.  The claim for unpaid overtime was brought under a Code section not covered by section 229, which only applies to wages owed under sections 200-244.

Lane argued that the arbitration agreement did not name the specific Labor Code provision subject to arbitration and therefore it should not be enforced.  The court disagreed with this argument and explained that the only requirement is that the agreement clearly evidence intent by the parties to arbitrate statutory labor claims.  The agreement at issue here met that threshold.

With respect to unconscionability, the court first discussed procedural unconscionability, which relates to oppression or surprise.  Lane argued the contract was one of adhesion since it was a requirement of his employment with FCM.  The court explained that California courts have held that the fact that an agreement is a contract of adhesion is just one factor to be considered and does not, in and of itself, render an agreement unconscionable.  Here, the agreement was only two pages and contains no "hidden" terms.  Based on its clear language regarding wage, hour and benefit claims, the court held that there was no surprise to Lane that his claims were subject to arbitration.

Lane's also alleged that because he was not given a copy of the rules governing the arbitration (which was to be governed by the AAA, or American Arbitration Association), the entire agreement should be rendered unconscionable.  The court disagreed, noting that the agreement mentioned the rules, contained a link to the rules, and they were easily accessible online.  The court believed Lane did not lack the means or capacity to understand how to access the rules online.

The other type of unconscionability is substantive, relating to the agreement's actual terms and their fairness.  The trial court found the agreement unconscionable because there was no term that explicitly provided for discovery in the arbitration process.  The AAA rules reference the discovery process, and those rules were incorporated into the agreement.  The court upheld the arbitration agreement and held that all of Lane's claims were subject to arbitration except for his third cause of action for unpaid wages.

Note:

There has been a flurry of cases pertaining to the enforceability of arbitration agreements in recent years.  This case helpfully points out that even if the agreement to arbitrate can be considered a contract of adhesion (meaning the employee really has no choice but to sign it if he or she wants the job), that is only one factor among many to consider in assessing the unconscionability.  Schools should work with legal counsel to make sure that all aspects of their agreement to arbitrate follows the standards set out in California case law to increase the chance that the agreement will be enforceable as written.

Lane v. Francis Capital Management LLC, --Cal.Rptr.3d--, [2014 WL 935292]