Court Invalidates Arbitration Agreement in FEHA Action

In Trivedi v. Curexo Technology Corporation (September 28, 2010, pub. October 20, 2010) --- Cal.App.4th ----, 2010 WL 3760224, the First District Court of Appeal affirmed an order denying an employer's petition to compel arbitration of an action alleging violation of the Fair Employment and Housing Act ("FEHA") and other causes of action. The Court held:

The arbitration agreement was procedurally unconscionable because it was prepared by the employer, it was a mandatory part of the employment agreement, and the employer did not give the employee a copy of the AAA Rules, which were incorporated by reference. Slip op. at 3.

The arbitration agreement was substantively unconscionable because it included a mandatory attorney fee and cost provision in favor of the prevailing party that placed the employee at greater risk than if he retained the right to bring his FEHA claims in court.

In contrast to case law under FEHA, the agreement does not limit Curexo's right to recover to instances where Trivedi's claims are found to be “frivolous, unreasonable, without foundation, or brought in bad faith.” Thus, enforcing the arbitration clause and compelling Trivedi to arbitrate his FEHA claims lessens his incentive to pursue claims deemed important to the public interest, and weakens the legal protection provided to plaintiffs who bring nonfrivolous actions from being assessed fees and costs.

Slip op. at 4.

The provision allowing either party to seek injunctive relief in court was not unconscionable on its face because it mirrored the injunctive relief provisions in the the California Arbitration Act. However, it was unconscionable in that the employer was much more likely to benefit from this provision. Slip op. at 6-7.

Finally, the trial court did not abuse its discretion in refusing to sever the unconscionable provisions from the remainder of the agreement.

At least two provisions were properly found to be substantively unconscionable, a circumstance considered by our Supreme Court to “permeate” the agreement with unconscionability. We disagree with [the employer] that the two provisions were “collateral” to the arbitration clause's primary purpose. We have already noted how highly our Legislature values the importance of attorney fee and cost recovery in wrongful employment termination litigation. While the trial court was free to sever the offending provisions, it was not required to do, and [the employer] has not convinced us on appeal that the court abused its discretion. The defects in the agreement, when coupled with the procedural unconscionability underlying its formation, leads us to conclude that to enforce the agreement would, in practical effect, “impose arbitration on an employee ... as an inferior forum that works to the employer's advantage.”

Slip op. at 7.

The full opinion is available here.