Pre-Employment Arbitration Agreement Held Unconscionable

By: Allyson K. Thompson

In the recent case of Wisdom v. Accent Care, Inc. (2012) 202 Cal.App.4th 591, the Third District Appellate Court decided that a clause in an application for employment requiring only the applicant to agree that, if hired, all disputes not resolved informally will be submitted to binding arbitration, is both procedurally and substantively unconscionable. AccentCare had filed a Motion to Compel Arbitration. The trial court denied the Motion.

Four of the six plaintiffs signed Acknowledgement forms when they applied for employment at AccentCare. The Acknowledgement was on the last page of an application form. It stated, "I hereby agree to submit to binding arbitration on all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by AccentCare, that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with AccentCare, whether during or after that employment, will be submitted to binding arbitration."

The Appellate Court reasoned that a court can refuse to enforce an unconscionable provision in a contract pursuant to Civil Code § 1670.5. A provision is unenforceable if it is both procedurally and substantively unconscionable. A contract can be procedurally unconscionable if it is oppressive due to the unequal bargaining power of the parties. In this case, the pre-employment arbitration agreement is procedurally unconscionable as few employees are in a position to refuse a job because of an arbitration requirement." The Court was also concerned that the plaintiffs did not understand that they were waiving their right to a trial, nor was this fact explained to them.

The Court also attacked the provision because it lacked mutuality. The lack of mutuality is made apparent by contrast to a post-hire arbitration agreement, also used by AccentCare, which provided that "in exchange for my agreement to arbitrate, AccentCare, Inc. also agrees to submit all claims and disputes it may have with me to final and binding arbitration...." In the context of an arbitration agreement imposed by the employer on the employee, a one-sided term was found to be unconscionable. The key to this case was that AccentCare required its prospective employees to sign the one-sided agreement to arbitrate. The Court distinguished the AccentCare pre-hire arbitration agreement with the AccentCare post-hire arbitration agreement, concluding that the post-hire agreement did not lack in mutuality because it indicated that both the employee and the employer agreed to proceed to arbitration and waive a jury trial. The Court remarked "clearly defendants knew how to draft a bilateral agreement."

This case is a red flag to employers to review their arbitration agreements in any pre-hire and post-hire documents. Make sure the provisions are bilateral, meaning that both sides agree to binding arbitration and agree to waive a jury trial. Also, ensure that you reference that the employee is free to consult with legal counsel before signing any documents.

Allyson K. Thompson is an Associate with Kring & Chung, LLP's Irvine, CA office. She can be contacted at (949) 261-7700 or athompson@kringandchung.com.