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In ordering parties to arbitrate an employment dispute, a federal district court in California ruled that an employer need not demonstrate that an arbitration agreement is bilateral in effect unless the agreement is explicitly or implicitly non-mutual. The Court held that the inclusion of a mutual obligation to arbitrate is sufficient to enforce the agreement.
In Miyasaki v. Real Mex Restaurants, Inc., No. C 05-5331 VRW, 2006 WL 2385229 (N.D. Cal. Aug. 17, 2006), Miyasaki sued Real Mex, her former employer, alleging discrimination on the basis of sex and race. Real Mex moved to compel arbitration pursuant to a dispute resolution agreement (DRA) that Miyasaki signed when starting her employment. In opposing the motion, Miyasaki argued that a supposed lack of mutuality rendered the DRA unconscionable and therefore unenforceable.
As the Court observed, California law “attaches a rebuttable presumption of unconscionability to arbitration agreements that are either explicitly or implicitly non-mutual.” An agreement is implicitly non-mutual if it excludes the only claims likely to be brought by an employer (e.g., violation of a non-compete agreement or misappropriation of trade secrets).
Since the DRA applied to all claims brought by either party, the rebuttable presumption of unconscionability did not attach. However, Miyasaki argued that Real Mex still had to demonstrate the DRA was bilateral in effect, citing the following passage from Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003): “Unless the employer can demonstrate that the effect of a contract to arbitrate is bilateral – as is required under California law – with respect to a particular employee, courts should presume such contracts substantively unconscionable.”
As the Court observed, “[t]he broad brush with which the [Ninth Circuit] painted leaves little room for doubt that neither explicit nor implicit non-mutuality is necessary to trigger the presumption prescribed by Ingle.” Despite the implications of Ingle, the Court cited two reasons why Real Mex did not have to demonstrate that the DRA was bilateral in effect as well as appearance.
First, the Court noted that the relevant passage should be treated as dicta because the arbitration agreement in Ingle was both explicitly and implicitly non-mutual. Second, the Court found that attaching the Ingle presumption to the DRA would be inconsistent with the approach taken by California courts. Since the presumption of unconscionability did not attach, the Court granted Real Mex’s motion to compel arbitration.
Real Mex was able to claim the benefit of arbitration by agreeing to resolve all disputes in that forum. Whenever a party to an arbitration agreement retains a unilateral right to seek judicial relief, the party imperils the whole agreement, even if the right to seek judicial relief is limited in scope. See, e.g., Dunham v. Environmental Chemical Corp., No. C 06-03389 JSW, 2006 WL 2374703 (N. D. Cal. Aug. 16, 2006) (striking down arbitration agreement for lack of mutuality where employer reserved right to seek judicial relief for misappropriation of trade secrets).
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