Valerie Serpa sued her former employer (CSI) for sexual harassment, discrimination, retaliation, and related claims. The trial court denied CSI's motion to compel arbitration, holding that the arbitration agreement was unconscionable and unenforceable because it lacked mutuality and any obligation to arbitrate by CSI was illusory. The Court of Appeal reversed, holding:
The arbitration agreement was a contract of adhesion and presented only a low level of procedural unconscionability. Slip op. at 8-9.
Although the agreement, when read in isolation, appeared unilateral because it did not impose an obligation to arbitrate on CSI, the agreement's incorporation into the employee handbook "salvages the agreement by establishing an unmistakable mutual obligation on the part of CSI and Serpa to arbitrate 'any dispute' arising out of her employment." Slip op. at 9-10.
Although CSI reserved the right to alter the terms of any policy contained in the handbook at its sole discretion and without notice, the implied covenant of good faith and fair dealing imposed a "fundamental limit" on CSI's ability to alter the agreement, and the agreement was not illusory. Slip op. at 10-14.
The arbitration agreement was substantively unconscionable because it required the parties to bear their own attorney fees, depriving Serpa of her unwaivable statutory right to recover fees if she prevailed on her claims under the FEHA. However, because the agreement was not "otherwise permeated by unconscionability," the proper remedy was to sever this one clause and enforce the remainder. Slip op. at 14-16.
The clause stating that Serpa would submit her claims to arbitration if the dispute "cannot be resolved through informal internal efforts" did not shock the conscience and was not substantively unconscionable. Slip op. at 16-17.
The opinion is available here.