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According to the California Court of Appeal, substantive unconscionability is found in an arbitration agreement which reserves the employer’s right to unilaterally modify it, regardless of whether the employer exercises that right in good faith.
In Diaz v. West Coast Laboratories, Inc., No. B195232, 2007 WL 2985284 (Cal. Ct. App. Oct. 15, 2007), Diaz was employed by West Coast Laboratories (WCL) as a machine worker. While working at WCL, Diaz was injured in an accident. According to WCL, Diaz was later fired for failing to perform certain job duties and inaccurately reporting work time, while Diaz alleged that she was fired for requesting accommodations and medical attention for the work injury.
Diaz sued WCL on multiple grounds stemming from her termination. WCL filed a motion to compel arbitration of her claims in accordance with an arbitration provision in their employee handbook, a copy of which Diaz signed. Diaz opposed the motion, claiming the agreement was both procedurally and substantively unconscionable. The trial court found that the agreement was both procedurally and substantively unconscionable, and denied the motion to compel.
On appeal, the Court affirmed the trial court decision, also finding both procedural and substantive unconscionability in the arbitration agreement.
First, the Court found substantial evidence in Diaz’s declaration that she had no choice but to sign the agreement to retain her employment. This, according to the Court, was sufficient by itself to establish procedural unconscionability, despite Diaz having ample time to consider the agreement before signing.
Second, the Court found that WCL had a unilateral ability in the terms of the agreement to modify it at will, and Diaz had no such power. This lack of mutuality of obligation, according to the Court, was sufficient to establish substantive unconscionability.
WCL argued that its duty to act in good faith in any modification of the contract precluded a finding of substantive unconscionability, but the Court declined to follow prior case law reading such a duty into the contract, and instead followed “persuasive authority” that a unilateral ability to modify, even in good faith, renders an agreement substantively unconscionable.
While the Court acknowledged that there was “only a small showing of substantive unconscionability,” the Court found enough procedural unconscionability that, taken together, rendered the whole agreement unenforceable.
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