If You Thought Concepcion Would Stop California Courts From Invalidating Arbitration Agreements, Think Again

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Damon Thayer is an associate in the insurance coverage, bankruptcy, and employment practice groups at Jenner & Block LLP in Los Angeles, California. http://jenner.com/people/damonthayer

Since the U.S. Supreme Court issued its landmark decision last year in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the eyes of many court watchers have been on California.  Specifically, many have wondered how the California Court of Appeal — a court (in)famous for its hostility to enforcing employment and consumer arbitration agreements — may attempt to limit the reach of this arbitration-friendly decision.  Perhaps unsurprisingly, since the issuance of Concepcion, the California Court of Appeal has continued to strike down numerous arbitration agreements, and it has done so largely based on the unconscionably doctrine. 

            One illustrative decision is Samaniego v. Empire Today, LLC, 205 Cal. App. 4th 1138 (2012).  In Samaniego, the court of appeal held that the arbitration agreement was unconscionable based on a laundry list of problems.  Most important to the court seemed to be the fact that the agreement was written in English, yet one of the two plaintiff employees could not read English and the other only had limited English reading skills.  The court also found significant the employer’s failure to provide the employees with a copy of the arbitration rules specified in the agreement.  The court additionally criticized various components of the employment agreement itself, including its length, small font size, single-spaced text, use of complex legal terminology, and failure to include a separate heading for the arbitration provision.  Substantively, the court condemned the agreement for shortening the limitations period, requiring that employees pay attorneys’ fees incurred by the employer for enforcement efforts (the employer conceded this provision was illegal), and exempting from arbitration claims typically brought by employers. 

            In another employment case, Mayers v. Volt Management Corp., 203 Cal. App. 4th 1194 (2012), the court of appeal invalidated a different arbitration agreement based on unconscionability.  The court’s decision hinged on the agreement’s failure to identify the exact arbitration rules; the agreement’s generic reference to “the applicable rules of the American Arbitration Association in the state [where the employee worked]” was not good enough.  In the same vein, the court criticized the employer’s failure to provide a copy of the rules to the employee or otherwise indicate how to obtain the rules.  The court also found noteworthy the agreement’s provision allowing the arbitrator to award attorneys’ fees to the prevailing party, because this essentially exposed the employee to a greater risk than he would have faced by pursuing his claims in court.  The California Supreme Court has granted review in this case, so stay tuned.  

            Whether or not Samaniego, Mayers, or similar decisions will survive review by the California Supreme Court and perhaps ultimately the U.S. Supreme Court is unknown.  In an abundance of caution, companies should make sure that their arbitration agreements heed the lessons of these cases.  First and foremost, companies should ensure that their agreements specifically state what arbitration rules will govern disputes, and they should either provide a copy of the rules to potential employees or at least list the website where the rules can be obtained.  Second, companies should attempt to accommodate non-English speaking individuals, either by providing translated agreements or giving the potential employees sufficient time to obtain translation services.  Third, if a company wishes to change the default rules regarding attorneys’ fees, it should be cognizant of the various proscriptions that courts have set forth in this area of law.  Last but not least, companies should not forget established contract principles, such as the need to utilize easily discernable language, appropriate font size, and proper headings and emphasis for arbitration provisions.

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