Arbitration of employment claims

Employee challenges an arbiration agreement.

On March 16, 2015, the First District Court of Appeal considered an employee’s challenge to an arbitration agreement she signed as a condition of employment. In Serafin v. Balco Properties Ltd., LLC (Cal. App. 1st Dist. Mar. 16, 2015) 2015 Cal. App. LEXIS 238, Ms. Serafin sought to avoid an unfavorable arbitration decision by contending that the trial court improperly ordered the parties to arbitration. She asserted that there was no valid agreement, and, alternatively, if there was an agreement it could not be enforced.

Ms. Serafin claimed she did not agree to arbitration because the two-page policy document she signed was merely an acknowledgment that she read and understood it. The court of appeal disagreed. In contrast to situations in which an arbitration provision was buried in a lengthy employee handbook, in this case the arbitration policy was a separate document and clearly labeled. In addition, the acknowledgment language was followed by a statement about the employee agreeing to comply with the policy.

Ms. Serafin also challenged the existence of an agreement because her employer reserved the right to change the arbitration policy at any time. The appellate court pointed to several court of appeal decisions which have established that an employer’s reservation of rights is limited by its obligation to make any changes in good faith. As a result, the agreement was not illusory.

Ms. Serafin contended that the arbitration agreement could not be enforced on grounds it was unconscionable: this requires a showing that it was the result of unequal bargaining power (procedural) and created one-sided or overly harsh results (substantive). The court in Serafin found procedural unconscionability because it was a “take it or leave it” agreement, but only to a limited degree because the provisions were highlighted for the employee. Furthermore, although the rules of the American Arbitration Association were not attached to the policy despite their application, the policy indicated that Ms. Serafin could obtain a copy of the rules from Human Resources or the Association.

As a result, Ms. Serafin had to establish a strong showing of substantive unconscionability. The court of appeal concluded she failed to do so. It rejected her “one-sided” contention that the policy only applied to claims employees might bring given its broad language that arbitration was required for any claims arising out of her employment. The appellate court acknowledged that the policy contained an unconscionable provision that prevented Ms. Serafin from recovering attorney fees and costs if she prevailed. But since the trial court severed this provision, and ordered that such fees and costs were available, Ms. Serafin could not demonstrate sufficient substantive unconscionability.

This decision reinforces the difficulty in challenging arbitration agreements.

Posted by deanroyerlaw