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A California federal court held that an employment arbitration agreement was valid despite a bar on punitive damages awards because, unlike in previous cases, both parties to this agreement were precluded from seeking punitive damages.
In Sinclair v. ServiceMaster Co., No. CIV. 07-611 FCD/KJM, 2007 WL 3407138 (E.D. Cal. Nov. 14, 2007), Ken Sinclair was employed with ServiceMaster and entered into an employment agreement that contained an arbitration agreement.
He later signed a compensation agreement which promised him a restricted stock award. When he did not receive the restricted stock, he expressed concern. Sinclair was fired, allegedly for cause, a few months later. Shortly after, ServiceMaster announced a merger with an investment group.
Sinclair filed suit against ServiceMaster, alleging various claims including wrongful termination, failure to pay wages, and breach of good faith. ServiceMaster moved to compel arbitration.
Sinclair contended that the agreement was unconscionable because it denied him the opportunity to seek punitive damages. See Armendariz v. Foundation Health Psychcare Services, 6 P.3d 669 (2000).
The Court found Sinclair's "reliance on Armendariz…unfounded." Unlike in Armendariz, mutuality existed in this case. Here, both parties were precluded from seeking punitive damages, rather than just the employee. Such preclusion of a remedy for both parties does not "shock the conscience."
Finally, the punitive damages exclusion "would not preclude any remedy [Sinclair] may be entitled to under statute," as only one of Sinclair's claims was based on a statute.
For these reasons, the Court found the arbitration agreement to be valid and enforceable.
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