In reversing a trial court's decision to confirm an arbitration award, a California appellate court held that an employment arbitration agreement is unconscionable and thus unenforceable where it lacks mutuality and also shortens to thirty days an employee's statutory time period for bringing a claim.

In Flores v. Prime Time Products, Inc., No. D052205, 2008 WL 4616801 (Cal. Ct. App. Oct. 20, 2008), Flores was hired by Prime Time Products (PT), and PT later adopted a 158-page employment manual that contained an arbitration agreement on page 49. Flores never expressly signed or agreed to the terms in the manual.

Flores later sued PT for wrongful termination. After losing on its motion for summary judgment, PT moved to compel arbitration, which Flores opposed, arguing that he had never entered into an arbitration agreement with PT, and even if he had, the agreement was unconscionable. The trial court granted PT's motion based on an admission by Flores during discovery that the manual governed the parties' working relationship.

The arbitrator issued an award partly in favor of Flores and partly in favor of PT. Flores moved to confirm and correct the award, while PT moved for sanctions based on Flores' motion to correct. The trial court confirmed the award, but also granted PT's motion for $12,000 in attorney fees in defending against Flores's motion to correct the award. Flores appealed.

On appeal, Flores argued that the trial court initially erred by granting PT's motion to compel arbitration because the arbitration agreement was unconscionable. The Court held that the agreement was procedurally unconscionable because it was located on pages 49-50 of a 158 page manual, contained no heading regarding arbitration, and was a required condition of employment.

The Court also found the agreement substantively unconscionable for several reasons. First, the agreement allowed PT to immediately discharge employees for certain acts without going to arbitration; therefore, the agreement lacked mutuality. Second, the agreement provided a 30-day limitations period for Flores to submit a claim to PT, and if he failed to do so within 30 days, his claim would be barred in any forum, including court and arbitration. The fact that this 30-day limitations period applied only to employee claims and not employer claims further supported the Court's finding of substantive unconscionability.

In addition, the Court held that another factor supporting a finding of substantive unconscionability was the fact that Flores first had to submit any grievance to an "internal grievance procedure" as a precondition to arbitration. The Court held that this gave PT a "free peek" at Flores's case, and a possible advantage if the grievance later went to arbitration. Therefore, the Court held that the agreement was unconscionable, and that the unconscionability permeated the agreement to such a degree that the offending provisions could not be severed. Accordingly, the Court reversed the judgment confirming the arbitration award.