Court Enforces "Procedurally Unconscionable" Arbitration Clause

A court in California found that it was “procedurally unconscionable” for an employer to bury an arbitration clause on page 42 of an employee handbook, but held that the employee was stuck with it anyway.

Lorena Nelson sued her employer for failure to pay wages on time, maintain payroll records, pay overtime, and a host of other systemic failures related to the basic right of employees to be paid for their work.  She brought the suit as a class action on behalf of herself and her similarly situated co-workers.

Lorena’s employer argued that she had waived her constitutional and statutory rights to pursue her claims in court when she signed a form acknowledging that she had received her company’s employee handbook.  Buried on page 42 of that handbook was a statement that any claim she may have “arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with” her employer would have to be brought in an arbitration.

The court found that the arbitration provision was “procedurally unconscionable” because it was hidden in incomprehensible language in small font at the very end of a 43 page document under a heading that did not refer to arbitration at all.  In the court’s words:

“Several factors support a finding [the employer’s] arbitration agreement is procedurally unconscionable.  It was part of a preprinted form agreement drafted by [the employer] that all [employees] were required to sign on a take-it-or-leave-it basis.  The arbitration clause was located on the last two pages of a 43-page handbook.  While the top of page 42 contains a highlighted prominent title ―TEAM MEMBER ACKNOWLEDGMENT AND AGREEMENT, the title makes no reference to arbitration and the arbitration language itself appears in a small font not set off in any way to stand out from the rest of the agreement or handbook.  Moreover, unless [the employee] happened to be conversant with the rules of pleading in the Code of Civil Procedure, the law and procedure applicable to appellate review, and the rules for the disqualification of superior court judges, the terms and rules of the arbitration referenced in the clause would have been beyond her comprehension.”

So why did the court find that the employee was bound by a contract that was secured by procedurally unconscionable trickery?  Because it felt bound by precedent that required the employee to demonstrate “both procedural and substantive unconscionability.”

On the issue of “substantive unconscionability,” the court held that the arbitration agreement was fair and balanced.  It provided that the arbitrator would be a retired superior court judge, that he would have to provide a written reasoned opinion, and that either party could appeal to a second arbitrator.

The court then held that the arbitration clause, as written by the employer, precluded the employee from pursuing any class action claims in the arbitration.  If she wanted to arbitrate her claim, she would have to do so alone.

The court noted that a different outcome might have been possible, but the employee in this case did not come forward with the necessary proof.  Waivers of an employee’s right to bring a class action “can be held unenforceable,” the court wrote, but only if the employee demonstrates “that (1) potential individual recoveries are small; (2) there is a risk of employer retaliation; (3) absent class members are unaware of their rights; and (4) as a practical matter, only a class action can effectively compel employer overtime law compliance.”

The employee did not prove her case, the court held.  She submitted only “a one and a half page declaration solely addressing facts relevant to procedural unconscionability.  She submitted no evidence as to any of the factors” relevant to whether the class action waiver was unenforceable.

Don't lose your rights because you failed to provide the necessary proof.  If you have a dispute with your employer, then you should consult with an experienced lawyer immediately.  To schedule a free initial consultation by telephone or in person, call my office today at (917) 652-6504 or click here to communicate with me via email.

John Howley
New York, New York

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