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A federal court in California denied an employer’s motion to compel arbitration on the grounds that (1) the arbitration agreement did not apply because the employee was not terminated and (2) even if the agreement were applicable, discovery limitations rendered the agreement unconscionable and thus unenforceable.
In Sherwood v. Blue Cross, No. CIV. S-07-633 LKK/DA, 2007 WL 2705262 (E.D. Cal. Sept. 14, 2007), Sherwood, a 51 year old employee of Blue Cross, was passed up for a promotion that was given to a 24 year old woman. Sherwood ended her employment with Blue Cross and then sued for age discrimination.
In response to the lawsuit, Blue Cross filed a motion to compel arbitration pursuant to an arbitration agreement that Sherwood entered into during her employment. In opposing the motion, Sherwood argued that the arbitration agreement applied only if she were terminated and, alternatively, that the arbitration agreement was unconscionable.
The Court agreed that the arbitration agreement did not apply because Sherwood resigned instead of being terminated. The Court gave the arbitration agreement this limited construction because the agreement stated that Sherwood agreed to arbitrate “in the event of [her] involuntary termination.”
Moreover, the Court found that the arbitration agreement, even if applicable, was unconscionable and therefore unenforceable. Blue Cross conceded procedural unconscionability by acknowledging that the arbitration policy was offered to Sherwood on a “take it or leave it” basis.
The Court found that the arbitration agreement was substantively unconscionable because it limited discovery to one deposition. In reaching this finding, the Court reasoned that the discovery limitation was disadvantageous only to the employee because the employer generally has the necessary information in its possession.
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