The arbitration agreement expressly stated that arbitration would be conducted pursuant to the rules of the American Arbitration Association, but the employer did not provide the employee with a copy of those rules or direction on where the employee could access those rules. On this basis, the Court determined that the agreement was not fair to the employee.
The Agreement also stated that the prevailing party could recover attorneys’ fees at arbitration. The Court found that this provision exposed the employee to greater potential liability than he would face if proceeding in court because the discrimination statute (FEHA) for the most part, only permits a prevailing plaintiff to recover attorney fees. This language was in direct conflict with the statute and on this basis, the court rejected the arbitration agreement. While the court could have severed out the offending fee shifting provision , it instead invalidated the entire arbitration agreement, allowing the employee to proceed with his claims in court.
This is not the first California case to find unconscionable an arbitration agreement that incorporates rules published elsewhere without providing an employee a copy of those rules. However, this has not been a predominant, or even common, basis for invalidating arbitration agreements in California.
This case serves to highlight that some California courts will look for any reason to invalidate a mandatory arbitration agreement. California employers should draft their agreements as cautiously as possible to avoid any such ground for a court to invalidate the agreement.
What Should I Do?
- Review all current arbitration agreements to ensure that all language is consistent with the statutory obligation for the employer to pay all fees associated with the arbitration.
- Ensure that the language designating the applicable rules are specified and make reference to where the employee can find the rules, or attach a copy of the rules to the agreement.