Last year, the U.S. Supreme Court approved the use of mandatory arbitration agreements for employment disputes in a lawsuit brought by a Circuit City employee. But now the Ninth Circuit, after taking a second look at the arbitration provisions in that case, has tossed out the agreement, ruling that it was unduly lopsided and didn’t meet fairness standards under California law.
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Employee Sues Despite Signed Arbitration Agreement
When Saint Clair Adams applied for a holiday sales job at a Santa Rosa Circuit City store, he signed an employment application with a provision requiring him to arbitrate all employment disputes. Two years later, Adams sued the electronics chain for sexual orientation harassment under the California Fair Employment and Housing Act. Circuit City tried to block the lawsuit by sending the dispute to arbitration.
Terms Are Unconscionable
In reviewing the agreement, the Ninth Circuit acknowledged last year’s U.S. Supreme Court ruling that employment arbitration agreements generally are enforceable under federal law. However, the court said the agreement still had to comply with state rules laid out by the California Supreme Court.
The court found the Circuit City agreement fell short of those state guidelines and was unconscionable. The court pointed out that the agreement wasn’t mutual: although Adams had to arbitrate all disputes, Circuit City was free to take claims against Adams to court. The agreement also unfairly limited the damages Adams could recover to significantly less than he could receive in a lawsuit under the FEHA. What’s more, Adams had to shoulder half the arbitration cost, in violation of the California Supreme Court’s mandate that employees can’t be required to pay an expense they wouldn’t incur if they went to court.
Appeals Court Rejects Judicial Review Provision
In another development, a California Court of Appeal has added to the list of factors to be aware of when drafting your arbitration agreement. The court threw out an agreement that provided for court review of the arbitrator’s award to determine whether it was “supported by law and substantial evidence.” According to the court, parties to an arbitration contract can’t agree to have a court review an award unless a statute authorizes the review, which wasn’t the case here.