This is another arbitration case, focusing on whether an employer's agreement to arbitrate was "unconscionable" because it included certain provisions. First, the Court does a nice job of summarizing its recent arbitration cases so that practitioners can one-stop shop for case law. Thank you Supreme Court.
When evaluating arbitration agreements, the courts look for procedural and substantive unconscionability. The more procedural unconsionability they find, the less substantive unconscionability they need to discern. And vice versa. They call this the "sliding scale."
Procedural Unconscionability
So, the first piece of business the Court addressed is the issue of "procedural unconscionability." That is, whether the arbitration agreement was "take it or leave it" and whether it was obtained via trick or surprise.
Now, as a practical matter, nearly every employment arbitration agreement has some degree of "procedural" unconscionability, because they are almost always "take it or leave it," or "contracts of adhesion." And here's where the court explained that it will not count an "adhesion" contract as a significant amount of procedural unconscionability unless there is something more - evidence that the employer hid the agreement, or lied to the employee.
In this case, Baltazar knew about the agreement And she even tried to refuse to sign it. The employer told her if she did not sign, she would have no job. The agreement was presented to her in a straight-forward way. Therefore, the court said it was a plain-old adhesion contract.
The Court also addressed the argument that the employer did not attache the AAA rules to the arbitration contract as evidence of procedural unconscionability. The Court said that there was nothing Baltazar pointed to in the rules that affected her rights. Therefore, there was nothing in the rules that created more procedural unconscionability because they were not given to her.
Substantive Unconscionability
The Court then turned to Baltazar's substantive unconscionability arguments. Her first argument was that the arbitration agreement stated that either party could seek injunctive relief in accordance with the California Civil Procedure Code's section 1281.8. Yes, she argued that the agreement was illegal because it included a statute's provision within it. Bad argument? Not when you consider that a previous court of appeal (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387) had held just that. The court in Trivedi held that a provision that simply stated that either party could seek injunctive relief was unconscionable because employers were more likely to use it. Goodbye Trivedi. The Supreme Court disapproved it. It was on the books for 6 years too long.
Baltazar also argued that the list of covered claims in the arbitration agreement was unconscionable because only employee-type claims were specifically mentioned. Here's what the agreement said, as described by the Court:
The parties “mutually agree” to arbitrate “any claim or action arising out of or in any way related to the hire, employment, remuneration, separation or termination of Employee.” The agreement specifies that the disputes subject to arbitration “include but are not limited to: claims for wages or other compensation due; claims for breach of any employment contract or covenant (express or implied); claims for unlawful discrimination, retaliation or harassment . . . , and Disputes arising out of or relating to the termination of the employment relationship between the parties, whether based on common law or statute, regulation, or ordinance.”
The Court had no trouble finding that this language included all claims whether brought by the employer or employee:
The illustrative list of claims subject to the agreement is just that; the agreement specifically states that such claims “include but are not limited to” the enumerated claims, thus making clear that the list is not intended to be exhaustive. It thus casts no doubt on the comprehensive reach of the arbitration agreement. It is not particularly remarkable that the agreement’s list of examples might highlight certain types of claims that employees often bring, since part of the purpose of the agreement is to put employees such as Baltazar on notice regarding the scope of the agreement, thus eliminating any possible surprise.
Finally, Baltazar tried to argue that the agreement's provision protecting trade secrets and confidential information rendered the agreement unconscionable. Again, the Court was not having it.
Baltazar argues that the arbitration agreement here is unduly one-sided because it provides that, in the course of arbitration, “all necessary steps will be taken to protect from public disclosure [Forever 21’s] trade secrets and proprietary and confidential information.” Baltazar contends that because the agreement neither defines “all necessary steps” nor specifies what constitutes “proprietary and confidential information,” the agreement unfairly demands that employees take whatever steps the employer deems “necessary” to protect whatever information the employer claims to be “proprietary and confidential.”
Baltazar misreads the confidentiality provision. Nothing in the agreement indicates that an employee must accede to any and all demands Forever 21 might make for the protection of confidential and proprietary information. As defendants explain: “This provision contemplates that if trade secret, confidential and proprietary information need[s] to be introduced into the arbitration that the parties [will] work with the arbitrator to make sure that such information is not disclosed to the public.” The agreement does not restrict the use of such information in the proceeding, nor does it pretermit any determination of whether a particular piece of information is a trade secret or otherwise qualifies as proprietary and confidential. Agreements to protect sensitive information are a regular feature of modern litigation, and they carry with them no inherent unfairness.
To the extent that Baltazar’s complaint is instead that the agreement calls for the protection of an employer’s confidential information without similarly calling for the protection of the confidential information of employees, we disagree with the suggestion that this omission renders the arbitration agreement unduly harsh or one-sided. As we stated in Armendariz, supra, 24 Cal.4th at page 117: “ ‘[A] contract can provide a “margin of safety” that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need without being unconscionable. [Citation.]’ ” Here, the basis for the extra measure of protection is a legitimate commercial need to protect Forever 21’s “valuable trade secrets and proprietary and confidential information” from public disclosure. Although Baltazar may dislike the wording of the confidentiality provision, she does not dispute that it is based on a legitimate commercial need. Moreover, nothing in the agreement precludes employees from seeking comparable protection for their personal information during arbitration proceedings, as circumstances may warrant.
So, this case is another one that will make it easier to draft arbitration agreements without worrying about excessive false mutuality. You know what I mean.
This case is Baltazar v. Forever 21, Inc. and the opinion is here.
