Worker Can’t Be Forced into Lopsided Arbitration Proceeding, California Court of Appeal Rules

Worker Can’t Be Forced into Lopsided Arbitration Proceeding, California Court of Appeal Rules

After a series of U.S. Supreme Court cases over the last dozen years promoting an expansive view of the implications of the Federal Arbitration Act on state worker protections, employers have frequently begun to require employees to agree to arbitration as a condition of hiring. However, a California appellate court recently ruled that contract law barred enforcement of one such agreement. In reaching its result, the Court of Appeal in Mills v. Facility Solutions Group rejected an employer arbitration agreement in cramped, difficult-to-read text, which the employee was forced to read on his phone. The unlawful arbitration agreement required the employee to shoulder many costs associated with any arbitration, and to give up a number of statutory rights—to discovery, to tolling of the statute of limitations, and to the ability to bring representative actions in certain Labor Code disputes. Because of the number of improper clauses, the entire arbitration agreement was held invalid, thereby allowing the employee to proceed with a class action that the arbitration agreement purported to bar.

Mandatory pre-dispute arbitration agreements perpetuate many injustices, including: the comparatively often-poor results for employees in arbitration; the use of mandatory arbitration agreements in situations where the parties clearly lack equal bargaining power, such as in low-wage workplaces; and the disproportionate impact such agreements have on people of color and women.  Mandatory arbitration agreements have antidemocratic effects because they prevent jurors and the public from making decisions based on evidence, and seek to keep secret employer wrongdoing. To read examples of Bryan Schwartz Law, P.C. blog posts about how mandatory pre-dispute arbitration agreements are being used to eviscerate workers’ and consumers’ rights, read our blog here, here, here, here, here, here, and here.

A promising trend has emerged this year, with courts spurning employer efforts to force workers out of the public arena and into private arbitrations. We have blogged about these worker victories—for instance, here, here, and here.  Even a Supreme Court opinion that allows mandatory arbitration agreements in California to limit a worker’s right to enforce the Labor Code Private Attorneys General Act (PAGA) in court left a hopeful path for plaintiffs seeking to hold their employers accountable by prohibiting arbitration agreements that would waive substantive employee rights. The Mills decision continues this trend.

The Mills case began when Chris Mills sued his former employer for Labor Code violations, on behalf of a putative class of similarly situated Facility Solutions workers.  Defendant Facility Solutions sought to enforce a mandatory arbitration agreement.  Los Angeles Superior Court Judge Amy D. Hogue refused to enforce the arbitration agreement, finding that the agreement violated California contract law.  Defendant Facility Solutions appealed, and the Court of Appeal affirmed.

Arbitration agreements are governed in part by federal law, including the Federal Arbitration Act.  But, as the Court of Appeal explained, whether an arbitration agreement is enforceable is a question of state contract law.  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.

Here, Mr. Mills agreed to a form arbitration contract as a condition of his employment, a type of contract courts refer to as an “adhesive contract.”  An adhesive contract may be procedurally unconscionable, because of the unequal bargaining power of the parties.  Because the adhesive contract that Mr. Mills was required to sign was a single-spaced, two-page agreement, written in a small font, with over 60 lines of text on the first page alone, and he read it on his phone, the Judge Hogue found that it was procedurally unconscionable. The Court of Appeal agreed. The decision could have major implications for employees working for companies that seek to use “click-through” arbitration clauses that employees barely have a chance to review.

As to substantive unconscionability, the appellate court found six different grounds for deeming the agreement unconscionable. Among these were provisions that required Mr. Mills to pay the filing fee and costs of any postponement of arbitration proceedings, and the costs of an appeal of any arbitration award and any subsequent hearing. The agreement allowed Defendant Facility Solutions to recover attorney fees under circumstances not authorized by statute, and it barred the tolling of the statute of limitations. Further, the appellate court found unconscionable the inadequate discovery authorized by the arbitration agreement. The arbitration agreement did not expressly authorize requests for admission, interrogatories, or requests for production of document. And the arbitration agreement required Mr. Mills to waive his right to bring a representative action under PAGA as to his wage-and-hour claims, which the court found unconscionable.

Because the arbitration agreement was riddled with substantively unconscionable terms, Judge Hogue found, and the appellate court agreed, that there was no way to strike only the unconscionable terms without vitiating the entire agreement.  Therefore, the arbitration agreement was held unenforceable.  Mr. Mills may proceed with his class action in court. Mills demonstrates the continuing vitality of Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, which for more than two decades has protected workers from arbitration agreements where the unconscionable clauses are too numerous to be severed from the balance of the agreement.

The recent willingness of courts to reject employers’ efforts to enforce one-sided arbitration agreements that keep workers from asserting their claims is a positive development for workers and for the public. We hope the next year will bring many more cases that support workers’ right to stand up for themselves.

If you’re a worker with questions about an arbitration agreement, please contact Bryan Schwartz Law, P.C.