Court decisions say policies must be fair to both parties
Two recent legal decisions signal a change in the way courts will view arbitration provisions, says Elliot Zemel, JD, an associate at the law firm of Fenton Nelson in Los Angeles.
In Wherry et al. v. Award, California's Fourth Appellate District Court of Appeal addressed an arbitration provision in an independent contractor agreement that was handed out with the instruction that the worker was required to sign it if he wanted to work. The court found that the provision, coupled with the instruction, rendered the terms procedurally and substantively unconscionable and invalidated the provision altogether. The absence of a meaningful opportunity to review or negotiate the agreement's terms was decisive as to procedural unconscionability. It was substantively unconscionable because the terms were overly harsh and unfairly one-sided when the company imposed costs of arbitration on the workers. As a result, the court invalidated the provision.
In Zullo v. The Superior Court of Santa Clara County Court of Appeal, another case involving a take-it-or-leave-it approach to employment terms, the court of appeal assessed the validity of a questionable arbitration provision. The court found that simply sticking an arbitration provision in an employee handbook created a contract of adhesion, that is, one that presented no opportunity for negotiation. In this case, the arbitration provision in the handbook required the use of American Arbitration Association (AAA) rules, but the employer did not provide the rules to the employee.
"Another condition for the employee was that they had strict timelines in which to comply with the arbitration provisions or they would forfeit their rights, whereas the employer had no special limitations or restrictions," Zemel says. "The court used the legal term 'unconscionable,' but really this was just unfair. It was severely prejudicial and one-sided."
Additionally, the court stated the policy was one-sided because it did not impose a mutual obligation to arbitrate. The court invalidated the policy.
Two recent legal decisions signal a change in the way courts will view arbitration provisions, says Elliot Zemel, JD, an associate at the law firm of Fenton Nelson in Los Angeles.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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