Wherry v. Award: Court of Appeal Invalidates Arbitration Clause

In Wherry v. Award, Inc. (2/23/11) --- Cal.App.4th ----, 2011 WL 635327, the Court of Appeal affirmed a trial court (Orange County Superior, Judge Nakamura) order denying petition to compel arbitration of FEHA claims. The Court found procedural unconscionability because the plaintiff/employee had no meaningful opportunity to negotiate the agreement's terms:

Both plaintiffs filed declarations stating that they were given the agreement when they first contracted with defendants and were told they were required to sign it if they wanted to work for defendants. No one described the agreement's contents and plaintiffs were given but a few minutes to review and sign it, without any time to ask questions. Further they were never given a copy of the document.

Further, contrary to defendants' claim, the fact there were other real estate firms where plaintiffs could have contracted to work does not necessarily vitiate the unconscionability, especially given the fact that as a CAR form, it is highly likely most if not all other brokerage firms would be using it. It merely means additional procedural unconscionability or a greater degree of substantive unconscionability must be shown.

Slip op. at 2-3.

The Court found substantive unconscionability in that it allowed the arbitrator to impose costs, including the arbitration fees, on the losing party. The defendant argued that the Court should red-line this term out of the agreement, but it declined to do so. Slip op. at 4. In addition, the Court found the agreement's 180-day limitations period unconscionable. Slip op. at 4.

Finally, the Court declined to sever the unconscionable provisions from the agreement, finding that the agreement was "rife with unconscionability." Slip op. at 5.

The opinion is available here.