In compelling arbitration of an employment dispute, a federal district court in California largely rejected the employee's unconscionability challenge, but found that the employer's unilateral right to modify or terminate the agreement was unconscionable. However, instead of invalidating the entire arbitration agreement, the Court severed the offending provision.

In Ramirez-Baker v. Beazer Homes, Inc., No. CV-F-008-601 LJO DLB, 2008 WL 2523368 (E.D. Cal. June 20, 2008), Ramirez sued Beazer Homes (Beazer), her former employer, for wrongful discharge and discrimination. Beazer filed a motion to compel arbitration pursuant to an arbitration agreement in Ramirez's employment application.

In opposing the motion, Ramirez argued that the arbitration agreement was substantively unconscionable because several of the provisions failed to meet minimum standards for employment arbitration agreements under California law. Specifically, Ramirez maintained that the discovery provisions were unconscionable because they did not provide for depositions as a matter of right.

The Court noted that discovery limitations are part of what makes arbitration more efficient than litigation proceedings. The arbitration agreement in this case allowed a neutral arbitrator to determine the scope of depositions and did not otherwise limit discovery. As such, the Court determined that the discovery provisions allowed Ramirez full access to Beazer's evidence.

The Court examined several other provisions of the arbitration agreement: the statute of limitations, arbitration filing fees, claims subject to arbitration, cost-splitting and confidentiality. The Court determined that none of these provisions were substantively unconscionable.

However, the Court determined that the unilateral termination/modification provision of the arbitration agreement was substantively unconscionable. Ramirez argued that the arbitration agreement was substantively unconscionable because it allowed Beazer to unilaterally terminate or modify the agreement. Beazer contended that the right to terminate or modify was limited because employees had a choice of which version of the arbitration agreement would apply to a claim.

The Court noted that the limitation only arose when an employee actually raised a claim, and therefore did not provide the employee a meaningful opportunity to negotiate modifications to the agreement. However, instead of invalidating the entire agreement, the Court severed the unilateral termination/modification provision and granted Beazer's motion to compel arbitration.