1. The U.S. Supreme Court's decision in AT&T Mobility v. Concepcion requires the Court to uphold a waiver of class actions in a consumer arbitration agreement (this one within an auto-sales contract). This is not news, as the California Supreme Court already recognized this rule in a prior case, which was decided while this one was pending.
2. SCOTUS's Concepcion case permits California to continue to apply an "unconscionability" defense to arbitration agreements under state law, provided the courts do not single out arbitration contracts for disfavored treatment. However, the Court, perhaps subtly, is putting some brakes on how courts may apply the doctrine of "unconscionability" to invalidate arbitration agreements.
This case involved a contract between a consumer and car dealership over the sale of a luxury car. So, not an employment case. We will have to wait some more for the courts of appeal to apply this decision, Sanchez v. Valencia Holdings LLC, to employment agreements. I think there will be a relaxation of the unconscionability standard, but not enough to allow significant changes to employers' arbitration contracts.
The language of the arbitration agreement is not entirely transferable to employment agreements. But some of the provisions may allow employers to include provisions that previously had been struck down as "unconscionable."
Justice Liu penned the 6-1 opinion. Justice Liu does not provide a lot of concrete standards for what is going to be considered "unconscionable." For example, as Justice Chin, concurring and dissenting, points out, the majority simply refuses to announce one formal standard for what counts as "unconscionable." Does a contract have to "shock the conscience" or must it be simply too one-sided that it's too unfair to the other side?
The standard the court distills is quite mushy and guarantees continued litigation over unconscionability:
The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.Nevertheless, the Court set forth a definition of unconscionable that appears to signal that courts should not be too eager to strike down terms that they feel are simply unfair:
that unconscionability doctrine is concerned not with ‗a simple old-fashioned bad bargain‘ (Schnuerle v. Insight Communications Co. (Ky. 2012) 376 S.W.3d 561, 575 (Schnuerle)), but with terms that are ‗unreasonably favorable to the more powerful party‘ (8 Williston on Contracts (4th ed. 2010) § 18.10, p. 91). These include ‗terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the nondrafting party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.‘ (Ibid.)‖ (Sonic II, supra, 57 Cal.4th at p. 1145.) Because unconscionability is a contract defense, the party asserting the defense bears the burden of proof. (Id. at p. 1148.* * *
unconscionability requires a substantial degree of unfairness beyond ‘a simple old-fashioned bad bargain.’ (Id. at p. 1160, italics added.) This latter qualification is important. Commerce depends on the enforceability, in most instances, of a duly executed written contract. A party cannot avoid a contractual obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain. Not all one-sided contract provisions are unconscionable; hence the various intensifiers in our formulations: ―overly harsh,―unduly oppressive,―unreasonably favorable. (See Pinnacle, supra, 55 Cal.4th at p. 246 [―A contract term is not substantively unconscionable when it merely gives one side a greater benefit . . . .].)
The Court also made clear that it wants to avoid federal intervention be emphasizing that courts may not single out arbitration agreements for more scrutiny than other contracts.
our unconscionability standard is, as it must be, the same for arbitration and nonarbitration agreements. (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1747].) Of course, unconscionability can manifest itself in different ways, depending on the contract term at issue. (See, e.g., Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 916–917 [choice of law clause]); City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 777 [waivers of liability provision]); Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1434 [statutes of limitation provision]; Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 495–496 [forum selection clause].) But the application of unconscionability doctrine to an arbitration clause must proceed from general principles that apply to any contract clause. In particular, the standard for substantive unconscionability — the requisite degree of unfairness beyond merely a bad bargain — must be as rigorous and demanding for arbitration clauses as for any contract clause.
Here are a few issues the Court addressed that can help employers' arbitration agreements:
1. The Court made clear that there is no obligation to set an arbitration provision apart from other contractual provisions or call it to the consumer's attention.
2. The Court also does not have lot of sympathy for the argument that the consumer did not read the contract or that it was buried under a lot of other papers, which employees often argue.
3. The Court upheld a provision where the plaintiff could appeal a $0 award to a panel of 3 arbitrators, and the defendant could appeal if the award exceeded $100,000. Therefore, provisions do not have to be 100% mirror image, which some lower courts have insisted on.
4. Along the same lines, the Court said that requiring the plaintiff to bear the expenses of the appeal was not unconscionable because the plaintiff did not prove he was unable to bear that cost. However, this case arose under a different statutory scheme than applies to employment disputes. So, employers should continue to bear any "type" of cost that is not incurred in court.
5. On the mirror-image "mutuality" issue, the Court said that a provision exempting "self help" such as repossession was OK because of the car dealer's legitimate business needs to repossess cars, and because the agreement exempted small claims cases, which benefited the consumer. Trade-offs, therefore, may save unconscionable provisions. Caution, though, because the Court in part based its decision on the fact that "self-help" itself is outside of litigation, so it was naturally something that need not be arbitrated. If the lower courts run with this, employers may be able to "carve out" some issues from arbitration - like intellectual property - if they carve out other claims that favor employees - like expense reimbursements maybe, for example? We shall see.
To sum up, the Supreme Court upheld the business's agreement. But it did not set forth clear standards on unconscionability. It may have relaxed the law of unconscionability a bit, but it did not hold that Concepcion guts California's (de facto) tough stance on arbitration agreements.
This case is not a blockbuster for employers or employees. It remains to be seen whether the employer or employee will try for U.S. Supreme Court review.
The court system in California is still under water. It can take a long time to get to trial. Judges are worked hard, and may not give your case the attention you think it deserves. So, arbitration can be quicker, which can cut down on defense costs. On the other hand, the cost of the arbitrator and administration can be expensive. And arbitrators are not afraid to issue large awards when they find cause to do so. So, arbitration is a yellow light, before and after Sanchez. Nothing in this case changes that view for me. Just my 0.02. YMMV. YOLO. [Insert cliche].
Sanchez v. Valencia Holdings LLC is here.
