May an adhesive, yet bilateral, employment arbitration clause that is not unduly harsh, oppressive or one-sided be found unconscionable and unenforceable?

Posted in: Arbitration, Employment Law by Steven Vartabedian on

In Sanchez v. CarMax Auto Superstores California, LLC (filed 2/6/14, publication ordered 3/4/14) B244772, plaintiff signed an arbitration agreement as a part of his employment application. He was hired as service manager and remained in that position until he was terminated about 4½ years later. In his lawsuit, plaintiff claimed the reason cited for his termination, unsatisfactory performance, was not the true reason; rather, he had been terminated because he raised safety issues about cars sold by CarMax. CarMax’s motion to compel arbitration was denied by the trial court, which found the arbitration agreement to be unconscionable and thus unenforceable. CarMax appealed. The Court of Appeal, Second Appellate District, Division One, reversed, directing the matter to arbitration.

The appellate court, in its de novo review, did find the agreement evidenced some degree of procedural unconscionability due to its adhesive nature. However, continued the court, the arbitration agreement must also be substantively unconscionable to be unenforceable. That would require a contract term to be unduly harsh, oppressive, or one-sided. The trial court had found unenforceability here because it viewed the arbitration agreement as not sufficiently allowing discovery, as placing certain requirements on an employee that were not placed on employer, as not giving the arbitrator authority to require just cause for an employment termination, and as not allowing claims of multiple employee claimants to be adjudicated in a single arbitration. The appellate court disagreed on each of these points.

The arbitration agreement here limited each side to 20 interrogatories and 3 depositions; discovery could be expanded by the arbitrator if there is a showing of “substantial need” and additional discovery “is not unduly burdensome and will not unduly delay the conclusion of the arbitration.” The trial court concluded the permitted amount of discovery is too low and the burden of showing a need for more discovery is so high as to thwart the ability to prove ones claims. The Court of Appeal disagreed because plaintiff here made no showing of any need for additional discovery. While a requesting party should not have to”demonstrate that a fair hearing would be impossible without additional discovery” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 716), the standard here was merely a showing of substantial need.

Plaintiff also complained that, under the agreement, employees had to fill out arbitration requests forms, prove their case based on a violation of applicable law, stay litigation of any nonarbitrable claims they may have against employer, and that employees were subject to the “full force and effect” of the arbitrator’s decision. These provisions were unfairly unilateral, argued plaintiff, as employer was not expressly likewise bound in each of these provisions. The trial court found these provisions unconscionable. However, the Appellate Court again disagreed; a reading of the entirety of the agreement disclosed a general provision that CarMax was subject to all of these rules and procedures.

Finally, the plaintiff’s notions that an arbitrator could not be precluded from finding no “just cause” for at-will employee’s termination, and that the preclusion of multiple-party claims in a particular arbitration proceeding was oppressive were not supported by case law. (See, respectively, Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___.)

So the Sanchez opinion dispels any notion that one-sided, “take it or leave” arbitration provisions will necessarily be found unenforceable, without further analysis. Also, a general provision of bilaterality may save the agreement that contains seemingly unilateral provisions.

The information contained in this blog is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients, clients or otherwise, should act or refrain from acting on the basis of any content included in this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. The content of this blog contains general information and may not reflect current legal developments, verdicts or settlements. The Firm expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog.