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A California appellate court held that an employment arbitration agreement that provides for enhanced judicial review and guarantees each party at least one deposition is enforceable.
In Oldham v. Flynt, Nos. B195911 & B197112, 2008 WL 4276535 (Cal. Ct. App. Sept. 18, 2008), Oldham worked for Larry Flynt, L.F.P. Their employment relationship was governed by an employee handbook containing an arbitration agreement. The agreement provided that each party was entitled to one deposition. The agreement also provided for enhanced judicial review of the arbitration award, requiring a court to review the award to determine if its ruling and findings of fact were supported by competent evidence and a proper application of the law.
Oldham sued Flynt for harassment and discrimination. Flynt moved to compel arbitration pursuant to the agreement in the employee handbook. Oldham opposed, arguing that the judicial review and discovery provisions were unconscionable and thus unenforceable. The trial court denied Flynt's motion to compel, holding that the enhanced judicial review and discovery provisions were unenforceable and not severable. Flynt appealed.
On appeal, the Court held that the law that existed at the time of the trial court's ruling supported the trial court's holding; however, that law had since been reversed by Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334 (2008). In Cable Connection, the California Supreme Court held that a contract provision calling for judicial review of an arbitration award for legal error is enforceable under state law. Accordingly, the Court in Oldham held that the provision providing for enhanced judicial review was enforceable.
Oldham also argued that the agreement was unenforceable because it improperly limited discovery by only allowing her to take one deposition, and that this limitation lacked mutuality. The Court disagreed, holding that the agreement provided for more generous deposition discovery than the California Arbitration Act, which does not permit any depositions without leave granted by the arbitrator.
In this case, the Court noted that each party was guaranteed at least one deposition, and any party wishing to take additional depositions could file a motion with the arbitrator. Consequently, the Court rejected Oldham's argument that the deposition "limitation" was substantively unconscionable, and also rejected Oldham's lack of mutuality argument because the provision applied to both Oldham and Flynt equally.
Finally, Oldham argued that the agreement was substantively unconscionable because Flynt had the unilateral power to revise the arbitration agreement. The Court disagreed, holding that Flynt's unilateral power was limited by the implied duty of good faith and fair dealing, which would prevent Flynt from modifying the terms of the agreement to its exclusive benefit. Thus, the Court reversed the trial court and compelled arbitration.
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