Darden: continuing the trend of pro-arbitration decisions

by DLA Piper
Contact

The California Court of Appeal’s recent decision in Leos v. Darden Restaurants, Inc. continues the nationwide trend of courts enforcing arbitration provisions according to their terms. 

 

The two plaintiffs alleged causes of action against their former employer, Darden Restaurants, Inc. under the Fair Employment and Housing Act and common law causes of action.  They also sought declaratory relief that Darden’s arbitration provision was unenforceable. 

 

When both employees were hired, they signed an acknowledgment  stating they had read and reviewed Darden’s  dispute resolution process (DRP) booklet containing the arbitration provision at issue.  After the plaintiffs filed their lawsuit, Darden filed a motion to compel arbitration pursuant to the DRP.  The DRP provides a four-step process for the parties to resolve their dispute, the last of which allows either the employee or Darden to submit the matter to binding arbitration according to the Employment Dispute Resolution Rules of the American Arbitration Association. 

 

Darden filed its motion to compel arbitration pursuant to the California Arbitration Act (CAA).  The plaintiffs opposed the motion, claiming the arbitration provision was unconscionable and thus did not satisfy the requirements set forth in California precedent.  Following the trial court’s denial of the motion to compel arbitration on the ground that the arbitration provision was unconscionable, Darden appealed. 

 

Is it unconscionable?

 

The Court of Appeals acknowledged that United States Supreme Court precedent behooves the invalidation of arbitration agreements if the court finds that generally applicable contract defenses, such as unconscionability, apply to such agreements.  Unconscionability has both a procedural and substantive element.  Procedural unconscionability focuses on oppression or surprise due to unequal bargaining power, whereas substantive unconscionability focuses on overly harsh or one-sided results.  The Court of Appeals reiterated that both procedural and substantive unconscionability must be present in order for a court to refuse to enforce a contract because it is unconscionable, but not to the same degree.  The more substantively oppressive a contract term, the less evidence of procedural unconscionability is required to conclude that a term is unenforceable, and vice versa. 

 

Because the plaintiffs were required to sign the DRP acknowledgments as conditions of employment, could not negotiate the terms of the DRP and had no meaningful choice in the matter, the Darden court quickly concluded that the DRP was procedurally unconscionable. 

 

Such a quick analysis of procedural unconscionability leads to a lower required finding of substantive unconscionability as sufficient to render the term or contract unenforceable as unconscionable.  The plaintiffs argued that the arbitration provision was substantively unconscionable in five respects, and the Court of Appeals dismissed each argument in turn.

 

The plaintiffs argued that the provision of the DRP stating that it “may be updated from time to time as required by law” rendered the entire arbitration provision illusory and unenforceable, or that it constituted an unconscionable clause.   The Darden court rejected this argument, expressing its confusion as to how “a clause permitting a modification as required by law can itself be unlawful.  If a particular modification is required by law, then the change is necessary to avoid the very result that plaintiffs seek here – the invalidation of the arbitration provision.”    

 

The plaintiffs also challenged three clauses in the DRP’s arbitration provision governing discovery.  The Court of Appeal held the provisions governing discovery did not hinder the employees’ ability to vindicate their statutory rights because one of the goals of arbitration is to streamline dispute proceedings.  Because all of the challenged provisions were subject to change upon the arbitrator’s determination of good cause, the limitations did not render the arbitration provision unconscionable.  

 

The Court of Appeal quickly dismissed the plaintiff’s contention that because the DRP provided that the employee may choose to arrange for a court reporter at his or her own cost, the plaintiffs were unfairly burdened with arbitration expenses.  Were the cause of action pursued in a civil action, the plaintiff would still have to pay such an expense pursuant to the California Rules of the Court; thus, Darden was permitted to impose the same cost requirements in an arbitration proceeding. 

 

The plaintiffs also argued that the DRP arbitration provision lacked mutuality and did not constitute a bilateral agreement because it contained a clause permitting either party to request available temporary or preliminary injunctive remedies.  The Darden Court rejected this argument, noting that the arbitration clause did not provide the employer more rights and remedies than would be available to the employee.  The arbitration agreement also did not exempt claims likely to be brought by an employer from arbitration yet require arbitration of claims likely to be brought by an employee. 

 

The plaintiffs finally contended that the DRP’s prohibition on class or collective actions in arbitration was unconscionable.  The Court of Appeal rejected this argument as irrelevant because the plaintiffs did not bring a class or collective action.   

 

The Court of Appeal thus reversed the denial of the motion to compel arbitration following a finding that the DRP contained procedural unconscionability but not substantive unconscionability. 

 

Despite the trend, reason to take care

This is a significant California case that furthers the trend of courts enforcing arbitration agreements according to their terms even when there are elements of procedural unconscionability involved. However, this case involved a “pro-employee” arbitration clause with substantial protections and should be viewed in the context of California cases on arbitration as a whole.  While the pendulum does appear to be swinging in favor of arbitration clauses, employers should not view this as a carte-blanche endorsement of all such clauses going forward.  Employers must be careful in drafting their arbitration agreements to make sure that the agreements do not curtail employees’ substantive rights, and California courts will likely consider these cases based on a review of the particular elements of the arbitration clause, and the particular way it is applied in the situation before it.

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.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper
Contact
more
less

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!