Daily Blast June 25, 2013

On June 24, 2013, the California Court of Appeal, Second Appellate District, Division One (Los Angeles) issued an opinion in Leos v. Darden Restaurants, Inc. (June 24, 2013, B241630) __ Cal.App.4th __, analyzing whether an arbitration agreement between an employer and employee was unconscionable. The Court of Appeal held that although the arbitration agreement was procedurally unconscionable, none of its provisions were substantively unconscionable. (Slip opn., p. 2.) This opinion is a good reminder that before plaintiffs may avoid arbitration based upon an argument that the agreement is unconscionable, they must establish both procedural and substantive elements of unconscionability.

Plaintiffs filed action against their former employer, Darden Restaurants, Inc. (“Darden”) for sexual harassment and retaliation. (Slip opn., p. 2.) Darden filed a motion to compel arbitration pursuant to an arbitration provision contained in a document entitled, “Dispute Resolution Process” (DRP). The DRP requires parties to seek to resolve a dispute through four steps, the fourth and final step being binding arbitration. (Id. at pp. 2-3.) The plaintiffs signed a Dispute Resolution Process Acknowledgment on the day they began employment, stating they had received and reviewed the DRP booklet. (Id. at p. 3.) Plaintiffs opposed the motion to compel arbitration arguing they were required to sign the Dispute Resolution Process Acknowledgment as a condition of employment and they had no choice. (Ibid.) The trial court denied the motion to compel arbitration on the finding the arbitration agreement was unconscionable. Defendants appealed. (Ibid.)

The Court of Appeal reversed the trial court’s order denying arbitration. The Court of Appeal found none of the provisions of the agreement were substantially unconscionable. Both procedural and substantial unconscionability must be present for a court to refuse to enforce a contract. (Slip opn., p. 7.) The agreement was procedurally unconscionable because plaintiffs were required to sign the DRP acknowledgment as a condition of employment, were unable to negotiate the terms of the DRP and had no meaningful choice in the matter. (Id. at p. 8.) Plaintiff argued the agreement was also substantially unconscionable in five respects. (Id. at p. 9.) The Court of Appeal addressed all five of these issues raised by plaintiff. First, the DRP states that it may be updated from time to time as required by law. (Ibid.) This clause is not unconscionable because it does not grant Darden an unfettered right to change the terms of the arbitration provision. Allowing Darden the right to modify the arbitration provision in accordance with the law does not render arbitration illusory. (Id. at p. 12.) Second, the provision governing discovery and the arbitration hearing are not unconscionable because the limitations on discovery, timing of the hearing and length of the hearing are subject to change upon the arbitrator’s determination of good faith. (Id. at pp. 12, 16.) Third, a provision stating the Employee may choose to arrange for a court reporter at his or her own cost is not unconscionable because the cost of a reporter’s transcript is not a cost unique to arbitration. (Id. at p. 16.) Fourth, the provision granting the arbitrator the same authority as a court of law to grant relief requested, including temporary restraints and preliminary injunctive remedies, is not unconscionable because the provision is not overly harsh nor so one-sided as to shock the conscience. (Id. at pp. 17, 22.) Fifth, plaintiff’s argument that the provision prohibiting class and collective actions is unconscionable fails because the claim was not brought as a class action and plaintiff did make the required evidentiary showing required to invalidate a class or collective action waiver. (Id. at p. 23.) Therefore, the arbitration agreement was not unconscionable and the trial court’s order denying the motion to compel arbitration was reversed. (Id. at p. 24.)

Related Practices

• Appellate