Wisdom v. AccentCare: Court Finds Arbitration Agreement Unconscionable

In Wisdom v. AccentCare, Inc. (1/3/12) --- Cal. App. 4th ----, 2012 WL 8701, the defendant employed the plaintiffs as on-call staffing coordinators. The plaintiffs filed suit, alleging that they were not paid for off-the-clock work. They sought damages and injunctive and declaratory relief.

The employer moved to compel arbitration based on an acknowledgment form that some of the plaintiffs signed when they applied for employment. The form stated:

I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by AccentCare,that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with AccentCare, whether during or after that employment, will be submitted to binding arbitration. I agree that such arbitration shall be conducted under the rules then in effect of the American Arbitration Association.

Slip op. at 2.  The trial court (Sacramento County Superior, Judge Steven H. Rodda) denied the motion, holding that the acknowledgment form was unconscionable. Ibid.

Relying on Armendariz v. Foundation Health Psychcare Services, Inc., (2000) 24 Cal.4th 83, the Court of Appeal affirmed, holding that the acknowledgment was procedurally and substantively unconscionable.  On procedural unconscionability, the Court held:

The contract, being one of adhesion, was oppressive. It was given to plaintiffs upon their application for employment. This situation leads to inherent unconscionability because of the unequal bargaining power of the parties and the nature of the relationship. There was no evidence that the plaintiffs in this case were highly sought-after skilled employees who individually negotiated the details of their employment relationship with AccentCare.

Slip op. at 3.  The Court noted that the arbitration was to be conducted under the American Arbitration Association rules, but the acknowledgment did not attach those rules. The Court also found that an element of surprise, as stated in the plaintiffs' declarations, in that the plaintiffs did not know what “binding arbitration” meant, no one explained it to them, and they did not know that they were giving up their right to trial. Ibid.  Cf. Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1468-1469.

The Court also found the acknowledgment substantively unconscionable because it lacked mutuality, i.e., it required the plaintiffs to arbitrate their claims but did not require the defendant to do so. Slip op. at 6.  The Court concluded:

The arbitration language in the acknowledgment signed by plaintiffs did not create mutual obligations. This, combined with the elements of procedural unconscionability present in the circumstances of the execution of the agreement compel the conclusion that the arbitration agreement was unenforceable.

Slip op. at 7.  The opinion is available here.