Arbitration Agreements, California’s Rules of Contract Enforceability, and Your Wrongful Termination Case

Arbitration Agreements, California’s Rules of Contract Enforceability, and Your Wrongful Termination Case
Arbitration Agreements, California's Rules of Contract Enforceability, and Your Wrongful Termination Case

When you need to bring a wrongful termination lawsuit or a wage-and-hour action, it's possible that your employer may seek to use an arbitration agreement you signed as a condition of your employment to shift the case from the court to an arbitration setting. Just because you signed it, don't assume that you'll automatically be bound by it. With the aid of an experienced San Mateo wrongful termination lawyer, you may be able to prove the arbitration agreement you signed was unenforceable and that you're entitled to proceed in litigation rather than arbitration.

B.B. was one of those workers. He worked as a branch manager for a payday lender in Southern California. During his term of employment, the manager and his employer signed an arbitration agreement. Accepting the agreement was a condition of the manager's continued employment.

Two years later, the employer fired the manager, so he sued for wrongful termination (in addition to asserting discrimination and wage-and-hour claims.) The employer promptly fought back by asking the trial court to compel the two sides to resolve their dispute in arbitration instead of at trial.

The manager, however, had a strong counterargument: that the arbitration agreement was "unconscionable" and therefore unenforceable under California law. The trial judge agreed with the manager, declared the agreement unconscionable, and denied the employer's request to compel arbitration.

The Two Kinds of Unconscionability

The employer appealed but ultimately lost. As the appeals court explained, California law recognizes two ways that a contract can be unconscionable and, therefore, unenforceable. One, it can be procedurally unconscionable. Two, it can be substantively unconscionable.

When it comes to procedural unconscionability, courts will start by determining whether or not the agreement was what the law calls a "contract of adhesion." That happens when the party with the superior bargaining power presents a standardized agreement on a "take-it-or-leave-it" basis to the other party. Contracts of adhesion aren't automatically unconscionable, but they can become so if they are oppressive.

The facts of the manager's case clearly supported a finding of oppression. As the appeals court pointed out, "it was undisputed that... he was pressured to electronically sign a number of documents and threatened with termination if he did not do so. His review of the agreement, which was reasonably complex in the eyes of a layperson, was not aided by an attorney." Given the manager's lack of legal sophistication, the amount of oppression present was "significant."

Substantive unconscionability, on the other hand, focuses on the fairness or unfairness of the contract's terms. If the terms are so excessively harsh or "so one-sided as to 'shock the conscience,'" then the agreement may be substantively unconscionable. The manager's agreement said that he had to pay his own attorney, expert, and witness fees and expenses, it shortened the limitations period to just three months' time, and it did not guarantee any discovery.

The limitation of the manager's right to recover his attorney's fees was, by itself, proof of substantive unconscionability. Furthermore, the contract placed the decision regarding how much discovery (or whether to allow any discovery at all) solely in the arbitrator's hands. Giving the arbitrator "unfettered authority" over discovery was also evidence of substantive unconscionability. On top of those, the reduction of the limitations period to three months was "particularly onerous." (By contrast, state law generally gives a worker 12 months to file a discrimination claim.)

In other words, the document the employer forced the manager to sign was unconscionable in numerous ways and the trial judge did not err in throwing it out and declining to compel arbitration.

Losing one's job is often traumatic. It can be even more so if your employer fired you for illegal reasons. If that's happened to you, prompt action is essential. Reach out ASAP to get in touch with the knowledgeable San Mateo wrongful termination attorneys at Galine, Frye, Fitting & Frangos, LLP. The sooner you call, the sooner we can get to work diligently pursuing your claims. Contact one of our helpful attorneys at 650-345-8484 or through our website.


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