Top Reasons Arbitration Clauses Are Thrown Out In California Courts

In this article, you will discover:

• What makes an arbitration agreement unconscionable under California law
• In whose favor California law interprets unclear or vague language in an arbitration agreement
• Whether procedural fairness affects the enforceability of arbitration agreements

What Makes An Arbitration Agreement Unconscionable Under California Employment Law?

Suppose the benefit of the arbitration agreement is too one-sided in favor of the employer or procedurally or substantively unconscionable. In that case, the courts may refuse to enforce the arbitration agreement as written.

• Procedural Unconscionability
  “Procedurally unconscionable” basically means that the arbitration agreement is presented as a take-it-or-leave-it proposition. In the law, such an agreement is referred to as an adhesion contract. Many contracts are presented this way.Often, financial institutions and car dealerships require mandatory binding arbitration, which is typically included in the fine print of their contracts. It’s presented to you, you don’t have time to read it, and you sign it. You don’t have a choice to negotiate whether you want to arbitrate. The agreement is simply imposed upon you by the bank or car dealership.The same is true for employers. Typically, an employer presents an arbitration agreement on a take-it-or-leave-it basis, often as an adhesion contract. The good news for employers is that although courts assume that arbitration agreements in these contexts are adhesion contracts and procedurally unconscionable, this alone is not enough to render the arbitration agreement invalid.
  
  
• Substantive Unconscionability
  Most of the legal disputes surrounding arbitration agreements relate to what is known as substantive unconscionability. For substantive unconscionability, courts consider several factors outlined in a California Supreme Court case known as Armendariz. The court held that for an arbitration agreement to be enforced, there must be:
  • A neutral arbitrator
  • Adequate discovery
  • The same remedies available for the specific claims that are available in court

  A written decision from the arbitrator that sets forth the basic facts and law upon which the decision is based
  Where employers fall short with substantive unconscionability is that they may create an agreement that is too one-sided. For example, the agreement may stipulate that only the employer can seek injunctive relief in court, while the employee is prohibited from doing so.

  Another way an arbitration agreement can be substantively unconscionable is if the employer uses a shortened statute of limitations. For example, a discrimination claim may carry a two-year statute of limitations. However, the employer’s arbitration agreement states that if you don’t provide notice to arbitrate within six months for any claims, your case will be time-barred.

  Sometimes, employers also try to limit the remedies available in arbitration. The arbitration agreement may stipulate that if you prevail in your harassment or discrimination action, your damages are capped at $100,000, with no punitive damages available.

  These are some of the classic ways that employer arbitration agreements are found to be unconscionable, mainly because they’re deemed substantively unconscionable, not procedurally unconscionable, which is a given.

In review, every mandatory binding arbitration agreement in employment is presumed procedurally unconscionable or adhesive. However, if the agreement is not substantively unconscionable, the agreement will be upheld.

How Do California Courts Interpret Vague Or Unclear Arbitration Agreement Language?

The standard statutory rule of interpretation is that vague and ambiguous language is construed against the drafter, in this case, the employer. Therefore, California courts interpret vague or unclear language in favor of the employee against the employer.

How Does Procedural Fairness Affect The Enforceability Of Arbitration Agreements In California?

Procedural fairness does not affect enforceability. Courts are not surprised by the procedural unfairness of an arbitration agreement. They assume procedural unfairness.

The courts take as a given the employer’s take-it-or-leave-it approach or that the arbitration agreement is an adhesion contract forced upon the employee. It’s more likely that substantive unconscionability could cause a court to invalidate an arbitration agreement.

Notes From The Field: How Do You Respond To Clients Who Are Surprised Or Upset That Their Arbitration Agreement Didn’t Hold Up?

Our clients are not upset with our enforceable arbitration agreements. We’re confident that our arbitration agreements will be upheld.

Clients are typically upset about other arbitration agreements created online, through artificial intelligence or by another source. Specifically, they’re upset because they cannot have the benefits of an enforceable arbitration agreement. And the benefits is primarily taking the case out of court and away from a jury of your peers (which as a business owner you don’t get your peers on the jury) to reduce the chance of a run away jury verdict.

Unfortunately, there’s not much we can do to comfort upset clients in that situation aside from letting them know that, in the future, we can reduce the potential for our arbitration agreement to be invalidated to the lowest possible level.

Still Have Questions? Ready To Get Started?

For more information on unenforceable arbitration agreements in California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (855) 534-5948 today.