United States - Arbitration & Dispute Resolution (2024)

In a recent ruling, a California appeals court found an arbitration agreement with an eyewear store employee that was presented on a take-it-or-leave-it basis...

United States Litigation, Mediation & Arbitration

In a recent ruling, a California appeals court found anarbitration agreement with an eyewear store employee that waspresented on a take-it-or-leave-it basis required an arbitrator toapply the laws of another state, required that arbitration beconducted in another state, and forced the employee to sharearbitration or mediation costs with the employer wasunconscionable, and thus unenforceable.

Quick Hits

• A California appellate court found an employer'sarbitration agreement with an eyewear store employee to beunenforceable for being both procedurally and substantivelyunconscionable.
• The appellate court noted several issues with the arbitrationagreement—including finding that it was a contract ofadhesion—that placed it “high on the scale ofsubstantive unconscionability.”
• Employers may want to scrutinize their arbitration agreementsfor provisions that may tip the scale in favor ofunconscionability.

On May 20, 2024, a panel for California's Fourth AppellateDistrict issued a unanimous, unpublished decision inDoppv. Now Optics, LLC, affirming a lower court's decisionthat found several of the provisions in the arbitration agreementmade it both procedurally and substantively unconscionable, andthus unenforceable. The ruling highlights how courts, at least inCalifornia, are scrutinizing employers' arbitrationagreements and declining to enforce such agreements when theycontain substantively unconscionable provisions that go beyondmerely requiring that disputes between employers and employees beresolved through binding arbitration—such as choice-of-lawclauses, forum-selection clauses, confidentiality provisions, andprovisions requiring sharing of costs and fees.

Factual Overview

Allison Dopp, who previously worked at Now Optics, LLC's,retail stores in San Diego County, California, from 2019 to 2021,brought a lawsuit against the company and related entity VisionPrecision Holdings, LLC, as well as two supervisorial employees,asserting class action claims for meal and rest period violationsand overtime violations, as well as various individual claims,including wrongful discharge and violations of the California FairEmployment and Housing Act (FEHA).

The defendants moved to compel arbitration relying on anarbitration agreement that Dopp electronically signed along withother onboarding documents when she was hired. Dopp opposed themotion, arguing that the arbitration agreement was procedurally andsubstantively unconscionable. The trial court agreed with Dopp anddenied the defendants' motion. The defendants appealed.

Procedural Unconscionability

The Fourth Appellate District held that the arbitrationagreement with Dopp was procedurally unconscionable for tworeasons:

• Contract of Adhesion.The arbitrationagreement was a contract of adhesion because the agreement was aprewritten agreement presented to Dopp on a “take it or leaveit” basis.

• Sharing of Unspecified Fees andCosts.The agreement was procedurally unconscionablebecause it required Dopp to share in the costs of both mediationand arbitration—despite not providing her with any way ofdetermining what those costs might be.

Substantive Unconscionability

The Fourth Appellate District Court agreed with the ruling bythe trial court that six provisions of the arbitration agreementwere substantively unconscionable:

• Florida choice-of-law provision.Thecourt held that requiring an arbitrator to apply Florida law wouldundermine Dopp's claims and would violate the CaliforniaLabor Code because applying Florida law would “deprive theemployee of substantive protections of California law for acontroversy arising in California.”

• Florida forum-selection clause.The panelstated that the forum-selection clause would violate a provision ofthe California Labor Code which “prohibits an employer fromimposing such a forum-selection clause on California employees as acondition of employment,” and further, that even in theabsence of such a statute, the provision was unconscionable becauseit was not within Dopp's “reasonable expectations to becompelled to resolve employment disputes in a distant forum on theother side of the country.”

• Required sharing of arbitration fees andexpenses.Noting that prior precedent provides that“[w]hen an employer imposes mandatory arbitration as acondition of employment, the arbitration agreement … cannotgenerally require the employee to bear anytypeof expense that the employee would not be required to bear if he orshe were free to bring the action in court,” the court heldthat a provision requiring the parties to share in arbitration feesand expenses was substantively unconscionable.

• Required sharing of mediation fees andexpenses. Applying a similar analysis as withrespect to the sharing of arbitration fees and expenses, the panelheld that the provision requiring the parties to share mediationfees and expenses was substantively unconscionable becausemediation fees and expenses were not an expense the employee wouldbear if she had litigated the matter in court.

• Requirement that each party pay their ownattorneys' fees. The court found that theprovision depriving Dopp of her potential right to recoverattorneys' fees available under California law wassubstantively unconscionable because it had the effect of“denying [her] the rights and remedies … she wouldhave if … she were litigating … her claims incourt.”

• Confidentiality requirement. The courtfound that the confidentiality provision requiring that disputes beresolved “by final binding confidential arbitration”was substantively unconscionable.

Based on the six substantively unconscionable provisions in theagreement, the court found that the arbitration agreement“register[ed] high on the scale of substantiveunconscionability.”

Severance

The appellate court further found that the trial court had notabused its discretion in declining to sever the unconscionableprovisions and enforce the remainder of the agreement. In reachingthat conclusion, the appellate panel noted the six substantivelyunconscionable provisions “systematically operated to depriveDopp of valuable rights and remedies as a Californiaemployee” and that the agreement was “permeated withtoo high a degree of unconscionability for severance torehabilitate.”

Key Takeaways

Recognizing that courts are likely to characterize arbitrationagreements between employers and employees as contracts ofadhesion, employers may want to consider avoiding provisions thatcould tip the scale in favor of unconscionability.

Such provisions may include those that require employees toshare in costs and fees of arbitration or pre-arbitrationmediation. Moreover, employers may want to exercise caution beforeincluding choice-of-law and forum-selection clauses in arbitrationagreements that would apply the law of, or require arbitration in,a jurisdiction other than the jurisdiction where the employee isemployed, or provisions mandating that arbitration remainconfidential.

Ogletree Deakins'Arbitration and Alternative Dispute ResolutionPractice Groupwill continue to monitor developments andwill provide updates on theCaliforniaandArbitration and Alternative DisputeResolutionblogs as additional information becomesavailable.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.