Ajamian v. CantorCO2e: Court, Not Arbitrator, Properly Ruled on Unconscionability of Arbitration Agreement

I started what's likely to be my last jury trial this morning -- I am now a full-time mediator, which I enjoy more than trial work -- and don't have much time to discuss this case, but it did catch my eye. 

In Ajamian v. CantorCO2e (2/16/12), an employer and its CEO appealed an order (San Francisco Superior Court, Judge Peter J. Busch) denying their petition to compel arbitration of respondent‟s claims under the Federal Arbitration Act. (9 U.S.C. §§ 1-16.) They contended:

(1) the arbitration panel, rather than the court, should have decided whether the arbitration provision in respondent's employment agreement was unconscionable; (2) respondent failed to establish that the arbitration provision was unconscionable, and any unconscionable portion of the provision should have been severed to permit the arbitration to proceed; and (3) alternatively, arbitration should have been compelled under the terms of an employee handbook.

The Court of Appeal affirmed the order.

Although the arbitration provision was broadly worded and indicated that arbitration might be conducted under the rules of an arbitration service that gives arbitrators the power to decide the validity of arbitration agreements, it did not provide clear and unmistakable evidence that the parties intended to delegate authority to the arbitrator, rather than to the court, to decide the threshold issue of whether the arbitration provision itself was unconscionable. The unconscionability issue was therefore for the court to decide. Furthermore, the provision was procedurally unconscionable and substantively unconscionable in more than one respect, such that the court did not abuse its discretion in concluding that the provision could not be saved by severing the offending terms. In addition, appellants failed to establish that arbitration should have been compelled under the employee handbook.

To me, the decision on unconscionability is less interesting than the decision to allow the court to make the call. See Rent-A-Center, West, Inc. v. Jackson (blogged here).

The Ajamian opinion is available here.