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California Court Refuses to Compel Arbitration Because of Unfair Agreement

California Court of Appeal Once Again Finds an Employer’s Arbitration Agreement to be Unconscionable

California courts continue to limit the validity of arbitration agreements between an employer and an employee.  Proof of this trend is the decision last month by the California Court of Appeal in Mayers v. Volt Management Corp., which denied an employer’s motion to compel arbitration.

In Mayers, the employee filed a Fair Employment and Housing Act (FEHA) discrimination claim against his employer, Volt.  The employer sought to compel arbitration based on a signed arbitration agreement.  However, Mayers argued that the arbitration agreement he signed was unfair based on general contract principles.

The Court of Appeal agreed, finding that the employer’s failure to provide Mayers with the specific arbitration rules that would apply to the agreement, and a copy of such rules, resulted in unreasonable surprise and oppression.

The Court further held that it was substantively unconscionable to include in the arbitration agreement a clause that allowed the arbitrator to award the prevailing party attorney fees to the defendant without any limitation.  This was because in a FEHA claim, the defendant may only be awarded attorney fees when the plaintiff brings the claim in bad faith or the claim is frivolous.

How Does This Affect Your Business?

The Mayers decision reiterates that employers must ensure that their arbitration agreements comply with California contract law.  In order to comply with Mayers, employers must set out in their agreements the governing rules of the arbitration service provider.  The employer must also provide the employee with a copy of those rules or at least with a website where the rules may be obtained.

In addition to this, Mayers requires that when an employer includes a clause in their arbitration agreement that shifts attorney fees to the other party, it must not grant additional rights to the employer that would not be granted if the case were filed in court.  Therefore, the fee-shifting clause should provide that the standards that would apply in court for awarding attorney fees also apply in arbitration.

For more information on how you can ensure compliance with these new arbitration requirements, please contact us at info@mitzelgroup.com.