In the recent case of Mayers v. Volt Management Corp, (PDF) the Court of Appeal upheld the lower court’s denial of the employer’s motion to compel arbitration. The employee had filed a complaint for violations of the Fair Employment and Housing Act ("FEHA"), and the employer moved to compel arbitration due to arbitration provisions signed by the employee in the application, employment agreement, and employee handbook.
The Court first distinguished the case from the facts of AT&T Mobility v. Concepcion. Here, the Court stated, the lower court had not denied the motion to compel arbitration by relying on a general rule that arbitration agreements for certain types of claims were unconscionable. Nor had the lower court found that the agreement was unconscionable because of the uniqueness of the agreement to arbitrate. Rules such as these would stand as obstacles to the accomplishment of the purposes of the Federal Arbitration Act ("FAA") and would therefore be preempted by it under AT&T Mobility. Rather, the employee had pointed to specific provisions in the agreement to show their procedural and substantive unconscionability.
The Court then discussed the issue of unconscionability, finding procedural unconscionability because the arbitration provisions were contracts of adhesion and the employer did not provide the employee with the applicable rules under which the arbitration would proceed, or even identify the set of rules that would apply.
The Court also found substantive unconscionability in the fee provision of the arbitration agreement because it provided a greater exposure to the employee for potential fees and costs than provided for under FEHA. The agreement called for the award of attorney’s fees to the prevailing party, whereas FEHA awards fees to the prevailing plaintiff, but to a defendant only if the plaintiff’s claim was frivolous or brought in bad faith.
Finally, the Court refused to sever the unconscionable portions of the arbitration agreement, stating that the failure to provide the arbitration rules and the attorney’s fees provision permeated the agreement with unconscionability.
This case, while reiterating already established law, serves as a reminder of the steps necessary for employers to ensure their arbitration agreements are enforceable. Employers will need to ensure they provide the specific arbitration rules to the employee at the time of the agreement, and fee provisions should match applicable statutes. This also demonstrates the limitations of the ruling in AT&T Mobility.