California Appellate Court Invalidates Employee Arbitration Clause on Grounds of Unconscionability

On December 21, 2023, the Third Appellate District Court of the State of California invalidated an ’employee’s mandatory arbitration clause. In the case of Hasty v. American Automobile Association of Northern California, Nevada & Utah, the appellate court determined that enforcement of the workplace arbitration provision in question would be “”unconscionable”.” Here, our Riverside County employment attorney provides an analysis of the court decision and the standard in California.

Case Review: Hasty v. American Automobile Association of Northern California, Nevada & Utah 

The Background

 The American Automobile Association of Northern California, Nevada, and Utah employed Aljarice Hasty. After her employment ended, Ms. Hasty filed a claim against her former employer, alleging, among other things, racial discrimination, disability discrimination, and workplace retaliation. The employer sought to compel arbitration based on the terms of the employment agreement. However, Ms. Hasty challenged the enforceability of the arbitration provision.

 The Legal Issue 

The core legal matter in this employment law case was the enforceability of an arbitration agreement. While there was no dispute that the employee signed a contract with a mandatory arbitration provision, she challenged the enforceability of the agreement on the grounds of both substantive and procedural unconscionability. For the purposes of employment law in California, the terms are defined as follows:

• Substantive unconscionability relates to the fundamental fairness of an arbitration provision. If the terms are overly broad, it may be unenforceable.
• Procedural unconscionability relates to the manner in which the agreement was presented to the employees. If the process is unfair, it may be unenforceable.

 The Decision

 Upon review, the California appellate court ruled against enforcing the arbitration agreement. The court determined that the arbitration provisions unenforceable on the grounds of both substantive and procedural unconscionability. The court found the arbitration provision to be overly broad and unfair. It contained a confidentiality clause and a waiver of legal rights that the court deemed to be problematic. The court also determined that the agreement was procedurally unenforceable. It determined that the method used by the employer—an electronic presentation with a short “”acknowledgment”” checkbox—was inadequate. Consequently, the arbitration provision has been ruled invalid, and the employee will be permitted to litigate the underlying matter.

 The Takeaway for Employers 

Workplace arbitration provisions are still enforceable in California. That being said, state courts apply a high level of scrutiny when reviewing these agreements. The key lesson that employers can take from this case is that they must carefully draft arbitration agreements which are fair to the employee and not overbroad in nature.. Further, any electronic distribution and acknowledgment processes for these agreements must be clear, accessible, and fair to employees. Employers should re-evaluate their arbitration agreements and the process by which they are signed to ensure legal compliance. A California employment law attorney can help.

We Represent Employers Throughout California

At Sloat Law Group, our California employment lawyer is a diligent, experienced advocate for employers. If you have any questions about workplace arbitration agreements, our legal team is here to help. Call us now or contact us online for a completely confidential consultation. We defend employers in Coachella Valley, Riverside County, and all across California.

 Source:

 law.justia.com/cases/california/court-of-appeal/2024/c097674.html