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In early April, the Ninth Circuit Court of Appeals reviewed a lower court’s holding that an arbitration clause in an employment agreement with JP Morgan was procedurally and substantively unconscionable. Because the arbitration agreement was adhesive in the employment agreement, the court held that it was “at least minimally procedurally unconscionable under California law.” However, the court continued to state that it was not substantively unconscionable for a variety of reasons, including where it excluded certain actions seeking only injunctive relief—where the court acknowledged that the carve out “does no more than recite the procedural protections” already afforded by California law. Additionally, where one party has the legal obligation to pay all of the costs unique to arbitration, the court held that it was not substantively unconscionable to have a non-mutual initiation provision. Next, the court determined that the employee could not challenge a confidentiality provision on the grounds that it “prevents others from observing and learning of Chase’s illegal policies and procedures” where no harm to himself was alleged. Finally, the court found that explicitly allowing an arbitrator to rule on summary judgment motions was not substantively unconscionable. As such, the Ninth Circuit reversed the lower court’s finding that the arbitration clause was unconscionable.

Ali v. J.P. Morgan Chase Bank, N.A., Case No. 14-15076 (9th Cir. Apr. 7, 2016).

This post written by Zach Ludens.

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In this case, a former employee of a retail store appealed to the California Supreme Court seeking reversal of an appellate court decision which found that an arbitration agreement in her employment application was not unconscionable.

An employee originally filed a suit against Forever 21 and individual defendants for harassment, race and sex discrimination and retaliation.  The defendants moved to compel arbitration based on the arbitration agreement in the employment application which was executed by the employee.  The California trial court denied the motion, finding that the agreement was unconscionable.  A California Court of Appeal reversed, finding that there was no substantive unconscionability in the agreement.  The California Supreme Court granted the employee’s petition to review, and affirmed the Court of Appeal’s judgment.

In its decision, the California Supreme Court found that an arbitration agreement, which authorized the parties to seek provisional relief in a judicial action while still compelling the remainder of the dispute to arbitration, was enforceable, noting that the clause “does no more than restate existing law . . . [and] does not render the agreement unconscionable.”  The court also held that an arbitration agreement remains enforceable when the claims it specifically lists that are subject to arbitration are claims that would likely be brought by an employee because the employer’s claims, even though not listed, would also be subject to arbitration.  It also found that a provision in the arbitration agreement that required both parties to agree that during arbitration “all necessary steps will be taken” to protect from disclosure the company’s trade secrets and proprietary and confidential information, was not unduly one-sided.  Lastly, the court held that the fact that the arbitration agreement stated that the arbitration would be conducted under the model rules of the American Arbitration Association, and the employee was not provided with a copy of the AAA rules, did not make the agreement procedurally unconscionable.

Thus, the California Supreme Court concluded that the arbitration agreement was not unconscionable and was enforceable.  Baltazar v. Forever 21, Inc. et al., No. S208345 (Cal. Mar. 28, 2016).

This post written by Jeanne Kohler.
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