California Court Finds Arbitration Agreement Signed as Precondition to Employment Unconscionable

Although arbitration agreements mean that a case must be resolved through arbitration, not all agreements are enforceable. If a party does not have a real opportunity to negotiate the terms of the contract or a contract heavily favors one party, these may be indications that the agreement is unconscionable and thus, unenforceable. A California court recently found that an arbitration agreement signed between an employer and an employee was unconscionable based on those circumstances. In that case, the plaintiff submitted an electronic application for employment with a property management company. The plaintiff electronically signed an agreement that was required as a precondition to employment. In the agreement, it stated that the plaintiff and the property management company agreed to settle all “claims, disputes, and controversies” related to the plaintiff’s application for employment, employment, and cessation of employment with the company exclusively through final and binding arbitration.

The plaintiff obtained employment at the company and later filed a claim against the company, alleging that he was not compensated for overtime work or certain business expenses and that he was not provided with accurate wage statements. He also alleged that he injured his back at work, took leave, and once he was able to return to work, he never heard back from the company. The company argued that the suit was required to be resolved through arbitration based on the language of the agreement. The plaintiff argued in part that the agreement was unconscionable and could not be enforced.

Unconscionability Under California Law

Although federal law and California law favor enforcing valid arbitration agreements, courts will not enforce an agreement that is unconscionable. Under California law, unconscionability means an “absence of meaningful choice” for one of the parties along with contract terms that unreasonably favor the other party. Thus, California law considers both the equality of bargaining power and “overly harsh or one-sided results.”

The Court’s Decision

In this case, the court noted that the agreement was not hidden in the application, but it was a precondition to employment and the plaintiff claimed that he was pressured to sign the agreement. In addition, the agreement shortened the applicable statute of limitations to one year and it limited each party to 20 interrogatories and three depositions for each side. The court explained that although the discovery limitation was seemingly neutral, it favored the employer because employers often have many of the relevant documents in their possession. Therefore, the court found the agreement was unconscionable and the case was allowed to proceed in court.

Contact a California Employee Rights Lawyer

If you are concerned about a violation of the Fair Labor Standards Act or of state or local labor standards, consult the Los Angeles employee rights lawyers at The Nourmand Law Firm. At The Nourmand Law Firm, we have dedicated our practice to protecting employees and their rights for more than two decades. They provide knowledge and tenacious legal representation to individuals in Los Angeles, San Bernardino, and Riverside Counties, as well as Oakland and Sacramento, among other areas. Call us today at 800-700-WAGE (9243) or contact us through our online form.