One-Sided Arbitration Agreement Found Unconscionable By California Court

Compton v. American Management Services LLC, No. B236669 (March 19, 2013): A California Court of Appeal recently held that an arbitration agreement was unenforceable because it was unconscionably one-sided. The agreement, which was required to be signed by all job applicants, was unenforceable because it required arbitration of employment issues such as discrimination, but allowed the employer access to the courts for disputes over trade secrets and unfair competition.

Leasa Compton applied for a job as a property manager with American Management Services (AMS) in February 2006. She signed an eight-page arbitration agreement in order to be considered for the job. She was hired in March 2006 and worked for the company until August 2009. In October 2010, Compton filed a class action lawsuit claiming violations of the California Labor Code with regard to minimum and overtime wages, rest and meal breaks, and reimbursement of expenses on the basis that she was misclassified as an exempt employee.

While the case was in discovery, the U.S. Supreme Court decided AT&T Mobility, LLC v. Concepcion, No. 09–893 (2011) and held that the Federal Arbitration Act (FAA) protects an employer’s right to include a class action waiver in its arbitration agreement even though a state law bars such provisions as unconscionable. Given this decision, AMS filed a petition to compel arbitration, which was granted by the trial court. The California Court of Appeal reversed the decision and noted that although an order compelling arbitration was not appealable, they had “elect[ed] to treat the appeal as a petition for writ of mandate.”

The court held that the arbitration agreement was one-sided because it required employees to arbitrate certain claims while allowing AMS to go to court for unfair competition and trade secret disputes. The agreement also imposed a one-year statute of limitations on employee claims but did not establish a similar time limitation on the employer’s claims for unfair competition and trade secret violations. The court also noted that AMS did not show that the business realities exception applies in this case.

According to Thomas McInerney, the managing shareholder in the San Francisco office of Ogletree Deakins: “This case underscores the importance of continually reviewing your arbitration agreements to ensure their continued enforceability, especially post-Concepcion. Any arbitration clause that attempts to impose time limits on the filing of claims that are more restrictive than provided under California law is almost always going to be struck down by a court. However, it’s very common for such agreements to allow a party to seek injunctive relief in court—although the courts are trending against allowing such clauses. The real danger for employers by not regularly examining and correcting relatively small problems in their arbitration agreements is exposure to large-scale class action litigation in court.”

Note: This article was published in the April 29, 2013 issue of the California eAuthority.

Topics:  Arbitration Agreements, Unconscionable Contracts

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Labor & Employment Updates

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.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »