Law Review: Employee’s mandatory arbitration clause ruled unconscionable
Arbitration has become a popular alternative to litigation in order to resolve disputes, especially in the employment realm. Many employment agreements contain an “arbitration clause” mandating arbitration rather than taking grievances into the courtroom. Sometimes those clauses are so one-sided to be deemed unconscionable and therefore unenforceable. Thank Davis v. TWC Dealer Group, Inc.
TWC operated a Toyota dealership in Walnut Creek. The Davis family of three sought employment to run TWC’s special finance department. They were required to sign three separate agreements, each mandated that the Davises agree to arbitration.
The three agreements were not only inconsistent, but they each contained in one form or another language mandating arbitration in fine and very fine print often buried deep within the agreement which cited a half dozen federal and state laws making it “quite difficult to read” as the First District Court of Appeal ultimately ruled.
The law of unconscionable arbitration agreements signed by employees was first set out in 2000 in the case of Armendariz. Hundreds of Today’s column goes light on the facts but takes excerpts from the Court of Appeal’s opinion so readers can determine whether a mandatory arbitration clause they are forced to sign is unconscionable and unenforceable.
Unconscionably begins with a contract of adhesion, a standardized contract drafted by the party of superior bargaining strength, which relegates to the employee only the opportunity to sign or not sign. It stems from an inequality of bargaining power and no real negotiation and the absence of meaningful choice.
The Toyota dealership’s arbitration clause was “written in a single block, without paragraphs to delineate different topics, arbitration clause is virtually impenetrable … The font chosen is so small as to challenge the limits of legibility … the language is legalistic, and the text is complex … tiny typeface.”
That, my friends, amounts to procedural unconscionability.
The second leg of the two tiers of unconscionability is substantive unconscionability which looks at the fairness of a contract’s terms. Terms like “overly harsh … unduly oppressive …” and “so one-sided as to shock the conscience” or “unfairly one-sided.” More than “a simple old-fashioned bad bargain” but terms that are “unreasonably favorable to the more powerful party…unconscionable terms.”
NO ARBITRATION FOR DISPUTE
As you sharp readers already know, the Court of Appeal found there was more than ample evidence that the Toyota dealership’s arbitration clause in the three different employment agreements (which were not even signed by the dealership) were both procedurally and substantive unconscionable and therefore unenforceable leaving the parties to settle their disputes in court.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOAs, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at email@example.com or http://www.portersimon.com.
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