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Mandatory Arbitration Policies: The Danger of "One Sided" Policies

Chavarria v. Ralphs Grocery Co. - Ninth Circuit Court of Appeals


Facts:  After having worked at Ralphs Grocery Co. for roughly six months, Plaintiff brought a class action against Ralphs for several alleged wage and hour violations of the California Labor Code and California Business and Professions Code.  As a condition of employment, Plaintiff had signed an employment application that included an arbitration agreement that provided for a class action waiver.  Ralphs moved to compel arbitration, pursuant to the arbitration clause in the application.

 The district court held that Defendant's arbitration policy was unconscionable and denied Defendant's motion to compel arbitration.  The U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s ruling. 

Holding: The Court examined Defendant's arbitration policy and found it was both procedurally and substantively unconscionable and therefore unenforceable.

 In regard to the procedural unconscionability of the arbitration policy, the Court held it was unconscionable on the grounds that it was “presented on a ‘take it or leave it’ basis with no opportunity for Plaintiff to negotiate its terms.”  In addition, Plaintiff was not provided with the terms of the agreement until three weeks after she agreed to be bound by it and the policy required no signature by the employee or Defendant to become effective.

 In regard to the substantive unconscionability of the arbitration policy, the Court held it was unjustifiably one-sided and it "shocked the conscience."  Notably, the Court focused on the fact that the policy arbitrator selection process would always produce an arbitrator selected by Defendant whenever an employee initiated the arbitration; the policy precluded institutional arbitration administrators, which have in place procedures to select a neutral arbitrator; and the policy required that the arbitrator apportion his or her fees evenly between Defendant, which in effect "price out" employees from the dispute resolution process.

 The Takeaway:  This holding from the Ninth Circuit Court of Appeals appears to put employers on notice that one sided arbitration policies will not withhold judicial scrutiny.  Consequently, employers should focus on drafting arbitration policies that are not so one sided or coercive and instead draft policies that are more equitable in the eyes of an increasingly discerning judiciary.
Judgment:  The Ninth Circuit Court of Appeals affirmed the district court's ruling and held that Defendant's arbitration policy is unconscionable under California law and remanded the case for further proceedings

 Majority Opinion Judge:  Judge Clifton

 Date:  October 28, 2013

 Opinion:  http://cdn.ca9.uscourts.gov/datastore/opinions/2013/10/28/11-56673.pdf

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