California: State Supreme Court Takes a Heavy-Handed Look at Unconscionability in Arbitration Agreements

In Oto, LLC v. Kho, the California Supreme Court again pushed back on arbitration agreements in employment. The U.S. Supreme Court historically has said that states cannot discriminate against arbitration as a forum for resolving disputes or in favor of some disputes over others. Here, the California Supreme Court attacked the unconscionability of the agreement, meaning that the agreement was unfair in how it was presented to the employee.

There, the employer’s porter presented the agreement to the vehicle service technician at his workstation, asked the technician to sign the documents immediately, and waited in the workstation for the document to be signed. No explanation of the document was provided.  The court stated that a “contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party.”

In its review of the circumstances in this case, the court stated that the technician was not afforded an opportunity to review the document, ask questions, or have his own attorney review it. It contained legal references that a layperson would not have easily understood. The document was densely printed, combined with an employment-at-will statement, and was a page and half long.  Additionally, the technician was not given a copy of the document he signed. Substantively, the agreement does not indicate how to initiate the arbitration process with the employer, and appears to waive the employee’s rights to have a wage and hour claim heard by the Labor Commissioner without an accessible and affordable alternative.

What does this mean for employers? It means that it’s time to have those arbitration agreements reviewed – again.  Employers should review and revise onboarding and signing processes to ensure a job applicant or employee has sufficient time to review the document before signing, is able to ask questions about it to a designated employer representative, and is given a copy of what the employee signed.

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