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Determining that an employment arbitration agreement's only unconscionable provision was one requiring each party to bear its own expert witness costs, a California appellate court has rejected a trial court's complete invalidation of the agreement and remanded the matter to evaluate the severability of the offending provision.
In Murray v. United Services Automobile Ass'n, Nos. A117596, A117598, 2008 WL 4196581 (Cal. Ct. App. Sept. 15, 2008), USAA hired Murray and McLorg (the Employees) as trial attorneys. During their period of employment, USAA implemented a dispute resolution program, Dialogue, ultimately requiring binding arbitration of employment-related claims. After the Employees were terminated, they brought suits alleging employment discrimination and wrongful termination. USAA moved to compel arbitration.
The trial court denied the motions to compel, finding multiple provisions of the agreements unconscionable. Also, the trial court found the unconscionable provisions so permeated the agreements that it refused to sever them and instead invalidated the entire agreements.
On appeal, the Court first determined that the Employees had in fact provided adequate consent to the agreements by continuing their employment after USAA provided notice of the implementation of the Dialogue program. USAA had presented irrefutable evidence to the trial court that it had in fact provided adequate notice and explanation to the Employees of the program's implementation.
Second, the Court rejected the Employees' contention that the arbitration agreements violated California's minimum requirements for adequate discovery in employment arbitration agreements under Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 102 (Cal. 2000). Contrary to the Employee's arguments, the Court found the absence of any specific discovery limitations did not empower the arbitrator with "totally unfettered discretion" over discovery issues, but rather provided for "such procedures as are necessary to vindicate [the party's] claim" and therefore complied with Armendariz.
Finally, the Court agreed with the Employees that the agreement's provision requiring the parties to bear their own expert witness costs was substantively unconscionable. Specifically, the Court noted that California law allows a court of law to award such costs at its discretion, Cal. Gov. Code § 12965(b), and an arbitration agreement could not provide otherwise without running afoul of Armendariz.
Because the trial court had refused to compel arbitration based on the presence of more than one unconscionable provision within the agreement, and because the Court had held that only the expert witness cost provision was in fact unconscionable, the Court remanded the matter back to the district court to consider whether the offending term could be severed and the balance of the agreement enforced.
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