Last month the California Courts of Appeal issued two separate decisions denying employers' attempts to compel arbitration agreements on the grounds that such agreements were unenforceable. For employers, these cases underscore the importance of reviewing mandatory arbitration agreements to ensure that they meet strict legal requirements, as the courts will closely examine such agreements to ensure that employees' rights are being adequately protected.
In Zullo v. Superior Court, California's Sixth Appellate District Court of Appeal reversed a lower court's order compelling arbitration of an employee's lawsuit alleging violation of California's Fair Employment and Housing Act on the grounds that the arbitration agreement was procedurally and substantively unconscionable. The defendant's petition to compel arbitration was based on an arbitration policy contained in the employer's handbook, a copy of which was provided to the employee when she was hired. The employee had signed and returned to the employer an acknowledgment of receiving the handbook. The court found that the arbitration agreement, being buried within the employment handbook with a host of other "take it or leave it" policies, was procedurally unconscionable because it did not provide the employee with a meaningful opportunity to negotiate. And the agreement was substantively unconscionable, according to the court, because it was overly one-sided; only those types of claims that would be brought by an employee were subject to the arbitration agreement, whereas a full range of remedies was preserved for the types of claims that would be brought by the employer against the employee. Upon concluding that the arbitration agreement was unconscionable and unenforceable as written, the court ordered the trial court to enter a new decision denying the employer's petition to compel arbitration.
In Brown v. Ralphs Grocery Co., California's Second Appellate District Court of Appeal issued a decision regarding the enforceability of employment arbitration agreements that limit employees' rights to assert class and representative actions. Ralphs' mandatory arbitration agreement barred employees from asserting class actions as well as representative actions under California's Private Attorneys General Act ("PAGA"). Citing California precedent finding most class action waivers to be unconscionable, the lower court refused to enforce the arbitration agreement and Ralphs in turn appealed that decision. In the interim, before the appellate court issued its decision, the U.S. Supreme Court held in AT&T Mobility LLC v. Concepcion that California case law invalidating class action waivers in consumer arbitration agreements is preempted by the Federal Arbitration Act ("FAA"). Notwithstanding this decision from the Supreme Court, the California appellate court elected not to extend the holding in AT&T Mobility to the PAGA waiver in Ralphs' arbitration agreement and that consequently, "the trial court correctly ruled that the waiver of plaintiff's right to pursue a representative action under the PAGA was not enforceable under California law." The Court remanded the case to the trial court to decide whether this one unconscionable provision could be severed or instead should invalidate the entire arbitration agreement. Both the majority and concurring/dissenting opinions hinted that the California Supreme Court should grant review to decide how broadly or narrowly to construe AT&T Mobility.