In a pair of recent decisions with opposite results, courts scrutinized mandatory employer-employee arbitration agreements under California law. In Davis v. O’Melveny & Myers, the federal Ninth Circuit Court of Appeals refused to enforce an agreement between a California paralegal and her prominent law firm employer. In rejecting the firm’s attempt to compel arbitration of Ms. Davis claim for overtime compensation, the court ruled that the arbitration agreement was unconscionable (and therefore unenforceable) because of four frailties:
(1) it shortened the statute of limitations applicable to Ms. Davis’ claim;
(2) it contained an overbroad confidentiality provision (such that it unfairly restricted Ms. Davis’ ability to, for example, contact potential witnesses);
(3) it allowed the law firm, but not Ms. Davis, to seek certain injunctive relief in court; and
(4) it prohibited Ms. Davis from filing claims with the federal Department of Labor or the California Labor Commissioner.
In contrast, a California court of appeal enforced an arbitration agreement in Giuliano v. Inland Empire Personnel, Inc. There, a former CFO sued his employer for breach of contract alleging that he was owed several million dollars in contractual bonuses and severance. The court held that mandatory arbitration was appropriate because the rules restricting the employer’s right to mandate arbitration of statutory discrimination and public policy claims - derived principally from the California Supreme Court’s Armendariz decision - did not apply. Specifically, through his breach of contract claim, Mr. Giuliano sought to recover contractual bonuses and severance, not statutory wage entitlements (e.g. minimum wage and overtime compensation).