labor lawAdivision of labor law center

California courts continue to limit employers’ use of arbitration agreements. This time, the Fourth Appellate District Court has determined that the new limits on arbitration agreements with employees also apply to independent contractors.

 

A previous California Supreme Court ruling in  Armendariz v. Foundation Health Psychcare established that an arbitration agreement with an employee is only enforceable if it is mutual and does not require employees to waive rights they have under state law. Previously, many employers believed waiver of rights was the main purpose of an arbitration agreement.  

 

The Supreme Court ruled that the employer’s “take it or leave it” attitude toward the items in the arbitration agreement made it invalid. Employees must be permitted to negotiate items in the arbitration agreement individually, without it affecting the job offer.

 

In order to be enforceable, a California arbitration agreement must provide for :

 

·         A neutral arbitrator

·         Sufficient discovery by both sides

·         A written decision adequate to allow review in the courts

·         All remedies available to the employee in court still permitted under arbitration

 

In addition, the agreement must not require the employee to pay unreasonable costs or fees

 

Now, a lower court has extended those same protections to independent contractors in Wherry v. Award Inc, Karena Wherry and Rocelyn Traieh were independent contractors working as real estate agents. They sued their employer, Award, Inc. for sex discrimination, sexual harassment and violations under the Fair Employment and Housing Act or FEHA.

 

The employer, Award Inc., moved to require arbitration under the contract.

 

The judge declined, ruling that the arbitration agreement was unconscionable. He found the arbitration agreement procedurally unconscionable because the employer had refused to negotiate any of the terms within the agreement. Workers were given the choice of accepting the agreement as written, or declining the job offer.

 

The judge also found the arbitration agreement substantively unconscionable because it permitted the arbitrator to award attorneys’ fees and arbitration costs if the independent contractors lost – fees they would not be charged if they lost in court. Even though these fees were never awarded, the judge ruled that simply having the provision in the agreement made it invalid. The agreement also limited the time to file a suit to 180 days, less than usual under state law.

 

Although the judge could have simply deleted these provisions from the arbitration agreement, he decided to throw out the entire agreement because he found it “rife with unconscionability.”

 

The moral for California employers is clear. An arbitration agreement that is non-negotiable or too tough is unenforceable and actually worse than no arbitration agreement at all.

 

 

 

 

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