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In affirming an order denying an employer’s motion to compel arbitration, a California appellate court determined that a lack of mutuality and discovery limitations rendered the arbitration agreement unconscionable and therefore unenforceable.
In Masterson v. Robbins Research International, Inc., No. 37-2007-00065082-CU-WT-CTL, 2008 WL 4681522 (Cal. Ct. App. Oct. 23, 2008), Masterson entered into an arbitration agreement with her employer RRI. When RRI terminated Masterson, she sued for age discrimination.
In response, RRI filed a motion to compel arbitration. The lower court denied the motion on the basis that the arbitration agreement was unconscionable and therefore unenforceable. On appeal, RRI argued that the district court misinterpreted the agreement.
As the Court noted, unconscionability has both a procedural and substantive element. Procedural unconscionability focuses on the circumstances and negotiations of the parties at the time they entered into the contract. The Court determined that the arbitration agreement was procedurally unconscionable because it was imposed on Masterson as a condition of employment and there was no opportunity for Masterson to negotiate the terms.
Substantive unconscionability assesses whether the provisions of the agreement are so one-sided as to make the contract void. The Court noted that there was ample evidence of substantive unconscionability. The Court stated that the agreement did not provide for adequate discovery. Specifically, under the agreement, Masterson would not have access to the benefit of initial interrogatories and would not be able to use requests for admissions during discovery.
Also, the Court found that the agreement required arbitration for the types of claims an employee is likely to bring while exempting the types of claims an employer is likely to bring. According to the Court, this lack of mutuality clearly favored the employer because it limited the arbitration requirement to those claims most likely to be brought by the weaker party.
Because the agreement was procedurally and substantively unconscionable, the Court held that the entire agreement was unconscionable and therefore unenforceable. The Court thus affirmed the order denying arbitration.
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