• Court Holds Arbitration Agreement Requiring Employee to Pay Half of Arbitration Costs is Unconscionable
  • November 7, 2013 | Author: Jacklina A. Len
  • Law Firm: Proskauer Rose LLP - Los Angeles Office
  • In Chavarria v. Ralphs Grocery Co., No. 11-56673, 2013 WL 5779332 (9th Cir. Oct. 28, 2013), the plaintiff, a former deli clerk, brought a class action against Ralphs for various alleged wage and hour violations of the California Labor Code. As a condition of employment, Chavarria signed an arbitration agreement containing a class action waiver. Ralphs filed a motion to compel arbitration.

    The U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s ruling that Ralphs’ arbitration agreement was unconscionable and therefore unenforceable. The Court said the agreement was procedurally unconscionable because it was “presented on a ‘take it or leave it’ basis with no opportunity for Chavarria to negotiate its terms.” Further, Chavarria was not provided with the terms of the agreement until three weeks after she agreed to be bound by it and the policy required no signature by the employee or Ralphs to become effective.

    Regarding substantive unconscionability, the Court found that Ralphs’ arbitrator selection provision would always result in Ralphs’ choosing the arbitrator whenever an employee initiated the arbitration and also explicitly precluded the use of institutional arbitration administrators, AAA or JAMS. The Court also found that the agreement’s requirement that the arbitrator apportion his or her fees evenly between Ralphs and the employee unless and until the U.S. Supreme Court ordered otherwise was directly contrary to California state law requiring that employers bear the costs of arbitration. Despite the Supreme Court’s recent pronouncement favoring the enforceability of arbitration agreements, the Court found that American Express Corp. v. Italian Colors Rest., 133 S. Ct. 2304 (2013), did not preclude it from considering the cost the arbitration agreement imposed on employees in order for them to bring a claim. In this case, the failure to shift the arbitration costs to the employer presented a potentially prohibitive obstacle to having the claim heard.

    This decision signals a willingness by the Ninth Circuit to invalidate arbitration agreements which appear to be one-sided, despite the recent series of Supreme Court cases requiring enforcement of arbitration agreements according to their terms. Employers, therefore, should carefully draft arbitration agreements to ensure they meet the fairness rules of their respective states and ensure that the agreements are presented to employees in a non-coercive manner.