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One-Sided Arbitration Agreement That Lacked Mutuality And Awarded Attorneys’ Fees Contrary To FEHA Is Unenforceable
All employees at Charter Communications (Charter) are required to agree to participate in an arbitration program for employee-related disputes, called Solution Channel. All individuals applying for a position with Charter are required to agree to participate in Solution Channel as well as Charter’s mutual arbitration agreement. Individuals who applied and received an offer from Charter were then required to complete a web-based onboarding process as a condition of employment that included accepting the arbitration agreement and the Solution Channel program guidelines.
After agreeing to submit all employment-related disputes with Charter to arbitration, Angelica Ramirez (Ramirez) was hired as an employee in July 2019. In May 2020, Charter terminated Ramirez. Ramirez sued, alleging various claims under the Fair Housing and Employment Act (FEHA) and wrongful discharge.
Charter filed a motion to compel arbitration and sought attorneys’ fees. Ramirez argued that the arbitration agreement was procedurally unconscionable because it was a contract of adhesion. She also argued the agreement was substantively unconscionable for several reasons, including that it shortened the statute of limitations, broadened Charter’s ability to recover attorney fees against an employee, unduly limited discovery, and favored Charter in defining the scope of the claims covered. She also argued that because unconscionability permeated the agreement, severance was not permissible. Lastly, Ramirez argued Charter was not entitled to attorneys’ fees and in any event, the request for fees was itself substantially unconscionable. Charter responded that the arbitration agreement’s terms were not unconscionable and, even if specific terms were unconscionable, the trial court should sever them and enforce the parties’ agreement to arbitrate. The trial court denied Charter’s motion to compel. Charter appealed.
The Court of Appeal agreed with the trial court and held that the arbitration agreement was a contract of adhesion. The Court of Appeal also held that the agreement contained a high degree of substantive unconscionability.
The doctrine of unconscionability has both a procedural and substantive element. Procedural unconscionability focuses on unequal bargaining power and whether the contract is a contract of adhesion. However, a contract of adhesion does not render the contract automatically unenforceable. Substantive unconscionability focuses on overly harsh or one-sided terms. Here, the Court of Appeal held that the arbitration agreement was a contract of adhesion because it was mandatory as a condition of employment.
The Court of Appeal also held that the shortened statute of limitations period was unconscionable. While parties to an arbitration agreement may shorten the applicable statute of limitations period for bringing an action, that period must still be reasonable. Here, the arbitration agreement provided that the period for an employee to file a FEHA claim is one year. However, FEHA grants the Department of Fair Housing and Employment one year to investigate and issue a “right-to-sue letter,” and then grants the employee one year after the right-to-sue letter to file an action in court. Therefore, the Court of Appeal held that the practical effect of the arbitration agreement shortens the period an employee can file a FEHA action in court.
The Court of Appeal held that the provision in the agreement that awarded attorneys’ fees to the prevailing party on a motion to compel was unenforceable. Other California decisions have held that employment arbitration agreements cannot alter the fee-shifting provisions provided by statute. Under FEHA, an employer may only recover attorneys’ fees if a plaintiff’s lawsuit was “frivolous, unreasonable, or groundless.” The arbitration agreement here allowed Charter to recover fees without meeting this burden, and therefore this provision of the agreement was contrary to FEHA.
The Court of Appeal also held that the arbitration agreement was unfairly one-sided because it compels arbitration of claims that more likely to be brought by an employee but exempts from arbitration claims that are more likely to be brought by the employer. Specifically, the agreement excludes claims for workers’ compensation, unemployment benefits, and severance/non-compete agreements.
The Court of Appeal held that the limitations on discovery were unconscionable. Specifically, the arbitration agreement limited each side to four depositions. Ramirez estimated that she would need to take at least seven depositions, and therefore demonstrated that the guidelines were inadequate to fairly allow Ramirez to pursue her claims.
Finally, the Court of Appeal rejected the Charter’s argument that the Court could sever the unconscionable provisions of the agreement and allow the case to proceed to arbitration. The Court reasoned that the agreement had several unconscionable provisions, in addition to procedural unconscionable, and therefore it could not simply sever those portions of the agreement.
The Court affirmed the trial court’s order denying Charter’s motion to compel and ordered that Ramirez is entitled to her costs on appeal.
Ramirez v. Charter Commc’ns, Inc. (2022) 75 Cal.App.5th 365.
This case shows that arbitration agreements should not substantively alter an employee’s rights provided by FEHA and other employment statutes. Private K-12 schools, colleges, and universities should consult with their attorney when drafting arbitration agreements.