A California Court of Appeal has upheld the denial of an employer's motion to compel arbitration of statutory discrimination claims, finding the terms of the agreement unconscionable, in part, because of its cost-splitting terms and the food service employee's "lower-wage" status.

In Liebrand v. Brinker Restaurant Corp., No. G039017, 2008 WL 2445544 (Cal. Ct. App. June 18, 2008), Liebrand was hired by Brinker to work as a food server at one of Brinker's Chili's Restaurants. As part of the hiring process, Liebrand entered into an arbitration agreement with Brinker encompassing all employment-related claims. Liebrand later alleged that Brinker engaged in pregnancy discrimination and failed to provide her with leave as mandated by California statute. See Cal. Gov't Code § 12940 et seq. (governing employment discrimination and failure to provide pregnancy leave).

Brinker moved to compel arbitration of Liebrand's claims under their arbitration agreement. Liebrand opposed, maintaining that she did not remember agreeing to arbitrate her claims, rescission if such an agreement was signed, and unconscionability. The trial court denied the motion, finding insufficient evidence that an agreement existed, and, in the alternative, that the agreement was procedurally and substantively unconscionable in a manner that warranted voiding the entire contract.

On appeal, the Court found that Brinker had in fact demonstrated an agreement to arbitrate. It noted that Liebrand never specifically challenged her signature's authenticity on the agreement, only that, if it was her signature, it was present because the agreement was "hidden" within other documents. To the Court, this was a mutual assent defense that was not supported by sufficient evidence.

However, the Court upheld the trial court's finding of unconscionablility. The Court noted that Liebrand's signature was indisputably a condition of employment and that Liebrand had little bargaining power to negotiate the arbitration term. Also, the Court assumed she was under economic pressure to assent to arbitration because "few employees are in a position to refuse a job because of an arbitration agreement." Even without surprise, the disparity in bargaining power was enough to render the agreement procedurally unconscionable.

As to substantive unconscionablility, the Court found Brinker's cost-splitting provision was in violation of well-settled California case law because it imposed a type of expense that Liebrand would not be required to bear in court. See Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 110-11 (Cal. 2000) (holding such cost-splitting provisions unconscionable). Furthermore, the Court found that the forum selection clause - requiring California workers to arbitrate in Texas - had the appearance of "discouraging lower-wage employees from pursuing possibly legitimate claims… because of the great expense involved in traveling out of state" to arbitrate. Under these circumstances, Liebrand's status as a lower-wage worker was enough to establish substantive unconscionability due to prohibitive costs.

Finally, the Court also held that the trial court's refusal to sever all unconscionable provisions was reasonable because of the sheer amount of unconscionable terms that "permeated" the agreement. Even if Brinker now agreed to sever all unconscionable terms, move the location of the arbitration proceedings, and bear all costs, severing now "would only serve to reward Brinker for conduct… somewhere between negligence and bad faith." According to the Court, allowing severance wouldn't deter employers from routinely inserting illegal clauses in mandated arbitration agreements, where the worst penalty is severance of some terms, but enforcement of the rest.