California: Arbitration Agreement Unenforceable Because of Contradicting Simultaneous Agreement
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APPLIES TO All Employers with Employees in CA |
EFFECTIVE June 13, 2025 |
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Discussion
In Silva v. Cross Country Healthcare, Inc., the California Court of Appeals said that where an employment agreement was signed on the same day as an arbitration agreement, and the employment agreement contained contradictory and one-sided terms, when read together, made the arbitration agreement void and unenforceable.
Here, an arbitration agreement, signed by an employer and employee, applied to all disputes between the two (not just employment disputes) with standard mutual terms: mutual waiver of jury trial, each party to pay their own attorneys’ fees and costs, and employer pays for arbitration fees. Simultaneously, an employment agreement was signed by both parties with different terms favorable only to the employer: one-sided confidentiality with the ability to seek remedies in court, one-sided attorneys’ fees and costs if the employer is successful in court, and the agreement is the entire agreement between the parties and supersedes any other agreements. Employees ultimately brought court claims against the employer for various alleged employment violations, and the employer sought to enforce the arbitration agreement.
The court said that the arbitration agreement and employment agreement must be read together to determine whether arbitration should be enforced. The agreements were “made as parts of substantially one transaction” during the employees’ hiring process. Further, substantial evidence supported the finding that the agreements “relat[e] to the same matters,” specifically how disputes are to be resolved between the parties. The court said that the agreements did not need to refer to each other or be based on the same consideration in order to be read together.
Additionally, when read together, the court said that the agreements are unconscionable because they are “unjustifiably” one-sided favoring the employer. “[L]ack of parity alone does not render a contract substantively unconscionable; it is only when the contract’s ‘one-sided-ness’ falls outside of the ‘”margin of safety”’—when the imbalance is not shown to have a ‘reasonable justification’ ‘based on “business realities”’—that the contract crosses the line into substantive unconscionability.” In addition to the non-mutual terms of the employment agreement, the arbitration agreement requires employees to arbitrate claims more likely to be brought by employees, while the employment agreement allows litigation of claims more likely to be brought by the employer. Even though the arbitration agreement was allegedly “squeaky clean,” the fact that another simultaneously executed agreement that contradicted those same terms meant that the arbitration agreement itself was not enforceable.
Action Items
- Have arbitration and employment agreements reviewed by legal counsel for compliance.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2025 ManagEase