Court of Appeal Deems Yet Another Arbitration Agreement Unenforceable

March 29, 2013

By:   Christopher P. Wesierski and Ashley A. Reagan

Plaintiff Leasa Compton filed suit against Defendant American Management Services, LLC (AMS) for Defendant’s alleged failure to pay overtime wages, reimburse expenses and provide rest and meal breaks. In entering into her employment contract with Defendant, Plaintiff signed an arbitration agreement that required employment disputes to be arbitrated but barred arbitration of class claims.  This effectively precluded Plaintiff from asserting any claims on a class-wide basis.

After the United States Supreme Court’s decision in AT&T Mobility v. Concepcion, Defendant moved to compel Plaintiff to submit her individual dispute to arbitration.  The trial court granted Defendant’s petition to compel.  Although the trial court’s order was not appealable, the court of appeal chose to treat it as a petition for writ of mandate due to the unconscionability issue.  The court of appeal reversed, finding that the arbitration agreement was both substantively and procedurally unconscionable and could not be enforced against Plaintiff.

The court of appeal determined that the agreement was substantively unconscionable because its terms were unfairly unilateral.  The agreement required the employee to arbitrate all disputes related to the termination of his employment but did not require the employer to arbitrate claims related to the protection of its intellectual property and the enforcement of any covenant not to compete.  In addition, there was a one year time limit to demand arbitration which is substantially less than the statutorily prescribed three or four year applicable time limits.  Further, an award by the arbitrator of attorneys’ fees to the employee was discretionary, which was in direct contrast to the Labor Code’s mandatory award of attorneys’ fees to employees prevailing on wage claims.  This arbitration agreement was “permeated with unconscionability.”

The agreement was procedurally unconscionable because Plaintiff was not given time to read the agreement before signing and the agreement was 1 of 20 forms, none of which were explained to Plaintiff.  In addition, Defendant failed to adequately describe and fairly portray the shortcomings of the agreement.  Plaintiff was also not provided with a copy of the arbitration rules to which she would be bound.

The court grounded its opinion in the reasoning set forth in the Armendariz v. Foundation Health Psychcare Servs. decision which deemed an arbitration agreement unilateral and denied an employer’s petition to compel arbitration of two individual sexual discrimination claims.  The court concluded that Concepcion did not overrule Armendariz and that its holding was still controlling law in California.  It was improper to enforce Defendant’s arbitration agreement against Plaintiff.

Facts and analysis based upon Leasa Compton v. Superior Court of Los Angeles County (American Management Services, LLC) decided on March 19, 2013 by the California Court of Appeal, Second District.