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Under California law, the presence of more than one unconscionable provision in an arbitration agreement, such as an oppressive class action waiver or the reservation of issues of unconscionability to the arbitrator, can be enough to render an entire agreement unenforceable, according to a California Court of Appeal.
In Murphy v. Check ‘N Go of California, Inc., NO. A114442, 2007 WL 3016414 (Cal. Ct. App. Oct. 17, 2007), Murphy was employed by Check ‘n Go as a manager. After leaving its employment, Murphy sued Check ‘N Go on her behalf and on behalf of all similarly situated employees, alleging that it had misclassified employees in her position as exempt, violating certain wage and labor laws.
Approximately one year before leaving Check N’ Go, Murphy entered into an agreement to arbitrate all claims arising from or related to her employment, other than certain federal insurance and discrimination claims. Check ‘N Go moved to compel arbitration of Murphy’s claims. Murphy opposed, alleging that the arbitration agreement was unconscionable.
The trial court denied the motion to compel arbitration, determining that it, not the arbitrator, had the jurisdiction to rule on the unconscionability claim, that the contract was one of adhesion, that the class action waiver within was unconscionable, and that the unconscionable provisions in the agreement could not be severed from the rest of the contract.
On appeal, the Court affirmed denial of the motion, holding that the trial court properly determined that the arbitration agreement and its class action waiver were unconscionable and unenforceable.
The Court first found that the agreement was an adhesion contract. The Court opined that parties to such an agreement “would not ordinarily expect that an arbitrator, rather than a court, would determine his or her own jurisdiction,” or that an arbitrator would make his own “determinations of unconscionability.” Together, these factors were enough, according to the Court, for the trial court to determine that these aspects of the agreement were both substantively and procedurally unconscionable.
The Court then found that the class action waiver in the agreement was also unconscionable. The Court stated it was particularly convinced by the declarations of counsel offered by Murphy stating that such a waiver would preclude parties like Murphy from seeking a remedy for Check ‘N Go’s alleged wrongdoing. Without the benefit of contradictory evidence, the Court determined that the trial court properly considered the available evidence in finding the waiver provisions were unconscionable “exculpatory clauses.”
Finally, the Court determined that the trial court had properly refused to sever the unconscionable provisions from the rest of the agreement, noting that California precedent allowed a court to refuse enforcement of the entire agreement when the agreement was “permeated” by more than one unconscionable provision.
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