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A federal district court in California found that an employee’s arbitration agreement was not governed by the Federal Arbitration Act (FAA) because of the intrastate nature of the industry – namely, funeral services. Nevertheless, the Court upheld the agreement under California law and thus issued an order compelling arbitration.
In Slaughter v. Stewart Enterprises, Inc., No. C 07-01157 MHP, 2007 WL 2255221 (N.D. Cal. Aug. 3, 2007), Slaughter worked for Stewart Enterprises (Stewart), a funeral services provider. In 2003, the Stewart held an employee meeting where it introduced a binding arbitration process called the Mutual Agreement Process (MAP). Slaughter signed the agreement.
A few years later, Slaughter sued Stewart for discrimination. Stewart moved to compel arbitration pursuant to the MAP. In opposing the motion, Slaughter argued that the FAA was inapplicable because the funeral services industry is purely intrastate. Alternatively, Slaughter argued the arbitration clause was unconscionable.
The Court granted Stewart’s motion to compel arbitration. Although the Court found the FAA did not govern the funeral services industry because the transactions involved were purely intrastate, the Court upheld the arbitration agreement under California state arbitration law.
The Court also rejected Slaughter’s unconscionability challenge. Under California law, a contract is unconscionable if it evinces a lack of mutuality. The Court found there was mutuality, as Slaughter and Stewart were both bound by the arbitration agreement.
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