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Under California law, an arbitration agreement that allows an employer to recover arbitration costs and fees is unconscionable; however, the unconscionable provision may be severed and the remaining arbitration agreement enforced, a California state court held.
In Matthews-Deaton v. El Torito Restaurants, Inc., No. B180881, 2006 WL 2349557 (Cal. App. Aug. 15, 2006), Matthews-Deaton, an employee of El Torito, brought claims against El Torito and one of its managing agents for sexual harassment and related claims.
All employees of El Torito signed an arbitration agreement, which included a provision that allowed the arbitrator to award the prevailing party arbitration fees and costs on statutory claims allowing the recovery of attorney’s fees and costs. Matthews-Deaton argued that the arbitration agreement was unconscionable and illegal because the provision allowed the company to recover attorney’s fees.
California statute prevents an arbitrator from “administer[ing] a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail….” CAL. CIV. PROC. CODE § 1284.3 (2002).
The Court noted that under California law, “consumer party” includes employees or applicants for employment. Therefore, the portion of the arbitration agreement that potentially allowed El Torito to recover attorney’s costs and fees was unconscionable and illegal.
However, California law allows a court to sever an unconscionable provision of a contract and enforce the remaining provisions. CAL. CIV. CODE § 1670.5(a). Therefore, the Court severed the portion of the arbitration agreement that allowed El Torito to recover fees and costs and compelled arbitration of the parties’ dispute.
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