A California appellate court reversed a trial court's ruling and held that an employment arbitration agreement was not unconscionable for its provisions governing selection of the arbitrator, the statute of limitations, costs, and confidentiality.

In Macias v. Ralphs Grocery Co., No. B202625, 2008 WL 3974197 (Cal. Ct. App. Aug. 28, 2008), Macias applied for a job with Ralphs. As part of the application process, Macias signed an application form that contained an arbitration agreement.

Ralphs hired Macias, but shortly thereafter, Macias sued Ralphs for sexual harassment and retaliation. Ralphs moved to compel arbitration pursuant to the arbitration agreement, but the trial court denied the motion, holding that the arbitration agreement was procedurally and substantively unconscionable. Ralphs appealed.

On appeal, Macias argued that the agreement was procedurally and substantively unconscionable under the standards set forth in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 6 P.3d 669 (Cal. 2000). The Court agreed that the agreement was procedurally unconscionable because it was presented on a take-it-or-leave it basis and was a prerequisite to employment.

However, the Court held that the arbitration agreement was not substantively unconscionable. Macias argued that a provision in the agreement unfairly limited the pool of potential arbitrators to retired judges. The Court rejected the argument because the provision allowed both parties to participate in the selection of the arbitrator.

Macias also argued that the agreement unfairly limited the period for bringing claims to one year in violation of the Fair Employment and Housing Act (FEHA). The Court rejected this argument, as well, holding that the limitations period is the same under the FEHA because an employee must file an administrative complaint within one year of the illegal employment action. Thus, the limitations period was not unconscionable.

Macias further alleged that the costs provision was unfair. The Court disagreed, holding that because the agreement required Ralphs to pay all of the arbitration fees "where required by settled and controlling legal authority," it was fair, as Ralphs would be required to pay the arbitration fees under Armendariz, which is "settled and controlling legal authority."

Macias also alleged that a provision requiring the parties to keep the "existence, content, and outcome" of the arbitration proceedings in "the strictest confidence" was overly broad and thus unconscionable. The Court again disagreed, holding that confidentiality provisions are not substantively unconscionable even if they favor one side as long as the "advantage is completely collateral to the issues surrounding a fair resolution of the dispute." Because the confidentiality provision did not preclude the fair resolution of Macias's claims, the Court rejected her arguments and compelled arbitration.