…with “surprise” terms that “shock the conscience.”
In Chavarria v. Ralphs Grocery Co., No. 11-56673 (9th Cir. Oct. 28, 2013), the Ninth Circuit shot down an employer’s motion to compel arbitration because it found the arbitration agreement both procedurally and substantively unconscionable under California contract law. In addition to the “take it or leave it” approach, which by itself puts one thumb on the “procedurally unconscionable” scale, the employer did not present the arbitration terms until three weeks after the employee had agreed to be bound by them. Next, relying on loose language from American Express Corp. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the court found the upfront splitting of arbitration costs between the employer and employee was substantively unconscionable because it makes many employees’ claims “impracticable.” Further, the court stated that the Federal Arbitration Act did not preempt California’s law regarding unconscionable contracts, and that the Supreme Court’s opinions favoring arbitration “cannot be read to immunize all arbitration agreements from invalidation.”
Despite the United States Supreme Court’s clear policy favoring the enforcement of arbitration agreements, lower courts continue to resist. The lesson? Employers can craft arbitration agreements with favorable terms, just as long as they are not too favorable.