Is that arbitration agreement signed by new employees enforceable? The use of mandatory arbitration provisions under California law has been the subject of much debate and litigation. These clauses compel employees to waive their rights to a jury trial for a variety of employment-related disputes, including wage violations, wrongful termination and harassment. Larger employers may also require employees to relinquish the right to initiate a class action lawsuit. There are limited circumstances, however, where a court may find that an arbitration clause is not enforceable and permit employees to proceed with an action in court. This occurs when the court finds the terms of the contract are so inequitable and harsh as to render enforcement of the agreement unconscionable.

To invalidate an arbitration provision on the basis of unconscionability, the court must conclude that there is both procedural and substantive unconscionability. A determination of procedural unconscionability rests on the circumstances surrounding the negotiation of the contract. An arbitration clause is generally considered to be procedurally unconscionable if presented to the employee on a “take-it-or-leave-it” basis, as is common in most circumstances. This concept, known as “adhesiveness,” results in most employment agreements being deemed procedurally unconscionable unless an employee is permitted to opt out of this provision in his contract.

Upon a finding of procedural unconscionability, a court will then evaluate the substance of the agreement to determine if the relevant terms are unconscionable. Substantively acceptable agreements require mutuality between the parties. The California Supreme Court explained that a lack of mutuality exists when only the weaker party’s claims are subject to arbitration proceedings or any benefits and remedies are offered exclusively to the controlling party with no rationalization for the absence of reciprocity. The courts have recognized several factors that demonstrate a lack of mutuality. These include: (i) an agreement forbidding the employee from exercising rights that are conferred by a statute, (ii) a requirement to appeal if the arbitration award exceeds a certain dollar amount, and (iii) providing that arbitration costs are the financial responsibility of the employee.

Shane Coons is experienced in all aspects of business and contract law and can assist employers and employees in contract formation and enforcement. Contact Shane Coons at 949-333-0900 or visit www.ShaneCoonsLaw.com for assistance.