Employer Can’t Bind Employee to Arbitration by Making Up Rules as It Goes, Court Finds

Employer Can’t Bind Employee to Arbitration by Making Up Rules as It Goes, Court Finds

An employer’s attempt to force an employee into arbitration based on vague contract terms and unspecified procedures was rebuffed by the California Court of Appeal.  The appellate court’s decision is consistent with a heartening trend—that, despite a series of U.S. Supreme Court cases over the last dozen years applying the Federal Arbitration Act to block meaningful enforcement of state worker protections, California law continues to evolve in a manner protective of employees’ rights. Though revisionist interpretations by the U.S. Supreme Court of the Federal Arbitration Act have been invoked as a panacea by some employers engaged in wrongdoing on a grand scale, even the Supreme Court has acknowledged that whether an arbitration agreement is enforceable remains a question of state contract law. See, e.g., Arthur Andersen LLP v. Carlisle, 556 U.S. 624-631.  The trend toward voiding unconscionable arbitration agreements is discussed here.

When General Electric (GE) hired Cassandra Murrey in 2018, the company made her agree to abide by a murky dispute resolution program called Solutions, one provision of which required arbitration before an unspecified dispute resolution organization. After Murrey experienced on-the-job sexual harassment, and retaliation for reporting it, she filed suit.  GE tried to force her into arbitration. The trial court granted GE’s motion to enforce the arbitration agreement, but the Court of Appeal reversed on Murrey’s petition for writ of mandate because the agreement was void as unconscionable.

Before finding the contract void, the appellate court briefly discussed last year’s federal Ending Forced Arbitration Act, which voids pre-dispute arbitration agreements as to sexual assault and harassment claims. The Act has some limitations, especially in its narrow focus—there is no reason that, e.g., claims of racial harassment and discrimination should be forced into secret, unreviewable proceedings while sexual harassment claims are exempt. But, the Act represents growing bipartisan recognition that mandatory employment arbitration agreements are unfair to ordinary workers, and too often allow employers to persist in wrongdoing. The secrecy that shrouds arbitration keeps wronged employees from speaking out; finding one another to engage in concerted action; and, alerting the public to corporate malfeasance.  The Murrey court opined that it regrets that the Act does not apply to Murrey’s claims, which predated the effective date of the Act.  At Bryan Schwartz Law, P.C., we have blogged extensively about the harms of forced arbitration, here, here, here, here, here, here, and here.

The arbitration agreement that Murrey was forced to sign, and the circumstances under which she signed it, provide a stark example of the coercion that lawmakers and courts have rejected.  When she started, the company provided her with a number of documents, including a manual called “SOLUTIONS: An Alternative Dispute Resolution Procedure.”  According to the court,

The Solutions manual offered the following summary of the procedures: “Solutions is a structured dispute resolution procedure that consists of two internal levels of review followed by, if necessary and applicable, outside mediation (Level III) and arbitration (Level IV). Levels III and IV apply only to Covered Claims, as defined herein. The levels of Solutions are in a logical sequence, and employees must complete each level of the process before proceeding to the next level.”

Whether Solutions is a GE program, the name of a third-party dispute resolution vendor, or just the title of the manual is, according to the court, never made clear.  What the Solutions manual did make clear is that Solutions protocol is mandatory for any complaint, and that, in the internal levels of review, an employee must participate without assistance of counsel.  Further, disputes that rose to the Solutions “Level” of arbitration would be submitted to a national dispute resolution organization, but that organization (and its governing rules) was never specified.  Employees were directed to talk to their Solutions Administrator, who remained similarly unidentified in the agreement. GE required Murrey to sign an acknowledgment of the Solutions manual and other documents, and to agree to their policies as a condition of employment.  Murrey was not given ample time to review the documents, request a modification, or ask questions about its terms.

In California, a contract (including an arbitration agreement) is unenforceable if it is unconscionable—that is, if one party lacked a meaningful choice in deciding whether to agree, and if the terms of the contract are unreasonably favorable to the other party. If one party lacked a meaningful choice, the contract is procedurally unconscionable; and, if the contract unreasonably favors the other party, it is substantively unconscionable.

Because Murrey was required to agree to the Solutions Manual as a condition of employment, the contract thus formed was what courts refer to as an “adhesive contract.” An adhesive contract may be procedurally unconscionable, because of the unequal bargaining power of the parties (as with a typical worker and an employer).  Because the adhesive contract GE provided Murrey allowed for no modifications, required quick review, entailed no opportunity to ask questions, and failed even to incorporate by reference the rules which would apply in an arbitration, the Court found that the adhesive contract was procedurally unconscionable. The court noted that the secretive nature of the Solutions Manual, the failure to identify a location of arbitration, and the Solutions Manual’s internal contradictions—at some points, the manual referred to the unnamed arbitrator’s rules, and elsewhere noted that an arbitrator’s rules might be superseded by unspecified GE rules. The confusing, shadowy nature of the proceedings to which an employee was required to submit persuaded the Court of the agreement’s procedural unconscionability.

As to substantive unconscionability, the court found that the agreement favored GE in a manner that voided the contract. Murrey was afforded only two days for arbitration, very little time to present evidence in a matter where both the underlying sexual harassment and the retaliation she experienced thereafter were at issue. Discovery under the agreement was limited by scope and time, in a manner whose unconscionability GE did not attempt to defend. Rather, GE simply asserted that because the Solutions Manual provided the arbitrator some discretion to expand or restrict discovery, the discovery provisions were permissible. As Murrey pointed out, this put the burden on her to justify any further discovery, a burden she should not have had to bear, given the complexity of workplace harassment claims. Also leading to the Court’s finding of substantive unconscionability were: the mandatory pre-mediation, pre-arbitration meetings without counsel; the provision of a potentially conflicted mediator; the shifting of discovery costs to the propounding party, which would burden the plaintiff; a carveout for claims not subject to arbitration, as to intellectual property claims, the type of claim most likely to be brought by GE against its employees; and, confidentiality provisions that would only aid GE.  These types of employer-friendly provisions are a familiar feature of one-sided, pre-dispute employment arbitration agreements, and here they went too far for the Court to enforce them.

An important lesson of Murrey is that employers cannot avoid unconscionability findings by using gobbledygook in their adhesive contracts. A contract that is difficult to decipher may itself be procedurally unconscionable because its vagueness deprives the employee of a meaningful choice of whether to agree to arbitration or not. And, limiting an employee’s ability to put on a fulsome case in arbitration, or forcing her to pay costs that she would not face in a court of law, should give rise to a finding of substantive unconscionability.

We hope that this is the first of many opinions this year to defeat employer efforts to use arbitration to hide their malfeasance and deprive the public of their right to participate as factfinders. The California Court of Appeals’ refusal to allow GE to set vague, employee-unfriendly rules for workplace disputes should encourage workers to stand up for themselves when they experience wrongdoing on the job.

If you’re a worker who experienced workplace wrongdoing and have questions about an arbitration agreement, please contact Bryan Schwartz Law, P.C.