California Courts are Getting Fed-Up with One-Sided Arbitration Clauses in Employment Contracts

Hardin Law Group

A lesser-known trick that employers and corporations use to avoid employee-protection laws involves requiring prospective employees to enter into an agreement to pursue any claims against the employer through arbitration. Arbitration is a binding, non-judicial forum that addresses claims dressed under simplified rules and procedures, which can reduce the resources needed to address employee claims. Unfortunately for employees, arbitrations are notoriously favorable to owners and management. The clauses have functionally been used for years as a way to prevent employers from pursuing harassment and other claims through the court systems, instead funneling claims to a forum that is favorable to the employers. A recent ruling by the California Courts of Appeals could mean that cracks are forming in the state’s wholesale approval of arbitration clauses as a condition of employment, hopefully allowing more employment law claims to be evaluated on the merits in a court of law.

The Facts

The plaintiff in the recently decided case is a woman who worked with the defendant, the University of Southern California, until August of 2021. She sued the University in 2022, alleging that her termination was the result of discrimination based on the plaintiff’s race and disability, as well as retaliation for asserting her rights to protection. In response to her lawsuit, USC asked the court to enforce the arbitration clause within the employment contract. The arbitration clause at issue was challenged by the plaintiff because it was forced upon her as a condition of employment, and the provisions within were extremely broad and unbound by any reasonable restrictions. The trial court denied USC’s motion to compel arbitration, finding that the arbitration requirement was “unconscionable,” which gave the court discretion to throw it out. The defendants appealed the trial ruling of the Court of Appeals, which addressed the unconscionability argument anew.

The Court’s Opinion

The appeals court found the arbitration clause unconscionable and unenforceable under applicable standards primarily due to a lack of mutuality and an overly broad scope. The court noted that the clause required the employee to arbitrate any claims against the employer and its broadly defined related entities without a reciprocal obligation for those entities to arbitrate their claims against the employee. This lack of mutuality created a substantial imbalance in favor of the employer, which the court deemed unjustified. Furthermore, the court criticized the arbitration agreement’s indefinite duration, surviving beyond the termination of employment without a clear end, contrary to standard contractual norms that allow for termination at a reasonable time. The court rejected the employer’s late attempt to justify this broad and indefinite scope, noting that these arguments were neither raised nor substantiated in the lower court.

Lastly, the court highlighted that the agreement effectively granted benefits to non-signatory third parties related to the employer, which the employee could not reasonably compel to arbitration. This one-sided benefit, lacking any justification, further supported the court’s conclusion that the arbitration agreement was substantively unconscionable. Thus, the appeals court affirmed the lower court’s ruling that the arbitration clause was unenforceable.

It is Possible to Avoid Arbitration, Even After Signing a Contract

If you have questions about a potential California employment law claim, your employer may seek to compel you to bring your claim to arbitration instead of through the courts. While some arbitration clauses are enforceable, this recent case demonstrates that California courts are willing to reject arbitration clauses and take cases on themselves if fairness requires. Employers don’t need any more advantages than they already have when addressing discrimination and harassment claims. If you have any questions, reach out and contact our experienced employment attorneys at Hardin Law Group to learn what legal action can be taken today. Contact us at (949) 337-4810 or reach out through our online form to schedule a free consultation.

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