Employer Loses Based On A Faulty Arbitration Agreement
With the advantages inherent to arbitrating – rather than litigating – employment disputes, arbitration provisions between employer and employee have seen a sharp increase in recent years. There have also been some significant new court decisions out of the United States Supreme Court favoring enforceability of these agreements. Nonetheless, it remains true that California courts continue to scrutinize these agreements carefully and in many cases, still find them unconscionable and unenforceable. The recent case of Ajamian v. CantorCO2e is one such example.
In Ajamian, the employer and employee entered into an arbitration agreement providing that any and all disputes would be resolved by final and binding arbitration. In March 2010, Ajamian’s employment was terminated, and later that year she filed a complaint in civil court, asserting claims for sexual discrimination, sexual harassment, retaliation, and various wage-hour claims. Ajamian refused to arbitrate.
The first issue the court addressed was whether the parties’ agreement called for an arbitrator or a court to decide the preliminary issue of whether the arbitration agreement was enforceable. Under the Federal Arbitration Act, the enforceability of an agreement is ordinarily to be determined by the court, but the parties may agree in the arbitration agreement that the enforceability issue will be delegated to the arbitrator. To establish this exception, it must be shown by “clear and unmistakable” evidence that the parties intended to delegate the issue to the arbitrator. The relevant language of the agreement in this case read: “Any disputes, differences or controversies arising under this Agreement shall be settled and finally determined by arbitration.” The employer argued this language showed the parties intended that even the threshold issues of unconscionability would be decided by the arbitrator. The employee, on the other hand, argued the language encompassed only all substantive disputes, while the enforceability of the arbitration provision itself remained a matter for determination by a court. The court agreed with the employee that the language was not explicit enough to show that the parties expressly intended for an arbitrator to decide the issue of enforceability. As a result, the issue was left to the court to decide.
After determining the court was tasked to decide enforceability, it then turned to whether the agreement was sufficiently fair to Ajamian to allow the dispute to go to arbitration. First, the court found the non-negotiable, “take-it-or-leave-it” nature of the agreement amounted to some unfairness. Despite the fact that Ajamian had an attorney review the agreement on her behalf prior to her signing it, the court found that the agreement still was not a product of negotiation. Ajamian had no “realistic bargaining power,” and was required to sign the agreement to receive her promised compensation for work she had already performed. As such, the agreement was procedurally unconscionable. The court also found several of the agreement’s terms substantively unconscionable. The agreement limited Ajamian’s ability to recover certain damages, forced her to forfeit otherwise “unwaivable” California statutes, and compelled her to travel to New York from California to attend arbitration, thereby costing Ajamian thousands of dollars she otherwise would not have to spend. Most importantly, the agreement allowed the employer, but not the employee, to recover its attorneys’ fees as prevailing party. These factors, taken as a whole, led the court to hold that the arbitration agreement was unconscionable and unenforceable.
This case is a reminder that any arbitration provision intended to leave the issue of enforceability to an arbitrator must be explicit. Employers should also ensure that the substance of the agreement (e.g., not limiting employee’s recovery and not adding extra costs to employee) is sufficiently fair to the employee to pass muster.
