California Court Of Appeal Finds Arbitration Agreement Contained In Employment Application To Be Valid

Baltazar v. Forever 21, Inc., B237173 (December 20, 2012): A former employee of Forever 21, Inc. filed a lawsuit against the company alleging discrimination and harassment. In response, Forever 21 filed a motion to compel arbitration based on an arbitration agreement contained in the plaintiff’s employment application. The trial judge denied the motion and determined that the arbitration agreement was substantively unconscionable because: (1) it required arbitration of employee claims, but not employer claims; (2) it required the parties to take “all necessary steps” to protect Forever 21’s trade secrets or confidential information; and (3) it required arbitration even if the agreement was found unenforceable.

The California Court of Appeal disagreed with the trial judge, stating that “[t]he Agreement, when read as a whole, leaves no doubt that Forever 21 must submit its disputes to final and binding arbitration.” The court rejected the plaintiff’s argument that language in the agreement allowing for provisional remedies, including restraining orders or injunctions from California courts, would permit access to the courts for the types of relief that only employers would seek, and pointed out that six of the plaintiff’s claims were brought under the California Fair Employment and Housing Act, which authorizes workers to seek injunctions.

The court also held that requiring the parties to take “all necessary steps” to protect Forever 21’s trade secrets and confidential information was not unconscionable because it only required such steps be taken in connection with an arbitration proceeding—reasoning that in the clothing industry, clothing designs are not protected by copyright.

Lastly, the Court of Appeal rejected the trial judge’s finding that the agreement mandates arbitration even if the agreement is found unenforceable, reading the provision to refer only to the invalidation of the rules for the arbitration. The court pointed out that “if the Agreement is unenforceable, there is no basis to compel arbitration under any rules or statutes.”

Note: This article was published in the January 31, 2013 issue of the California eAuthority.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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