California Court Finds Arbitration Agreements Unconscionable

Employment Law


Agreeing with a trial court that the arbitration agreements at issue were both procedurally and substantively unconscionable, a California appellate panel denied the employer’s motion to compel arbitration.

In the spring of 2013, three members of the Davis family—Donald, Bonnie and Raymond Davis—began working at TWC Dealer Group in Walnut Creek to run the dealership’s special finance department. The Davises are African-American and Donald is over the age of 40.

Each of the Davises was required to sign an agreement at the beginning of their employment. Each agreement was different, but all of them contained an arbitration provision.

Not long after the Davises began working for TWC, a new general manager started. According to the Davises, he made inappropriate ageist and racist comments to and about them. All three resigned and filed suit against their former employer.

TWC moved to compel arbitration, relying on the various agreements. A trial court denied the motion and the employer appealed. The appellate panel affirmed, finding the agreements both procedurally and substantively unconscionable.

Beginning with procedural unconscionability, the court said the agreements were presented in “classic” take-it-or-leave-it style. One of the agreements was just one page long but consisted of six paragraphs, all in identical, small “and quite difficult to read” font,” the panel said.

“None of the six paragraphs is labeled or titled, in boldface or otherwise,” the court wrote. “The fourth of the six paragraphs is the one that refers to arbitration, though hardly in language that is easy to comprehend.”

The second agreement was two pages long but contained only two paragraphs, one of which ran 67 lines long, without any indentation and a sentence that was 15 lines long; the third agreement also featured long paragraphs and confusing language, the court said.

As for substantive unconscionability, the panel found multiple problems with the agreements. The employer used “fine-print terms” that were “so small as to challenge the limits of legibility,” the court wrote, and the agreements lacked mutuality, as evidenced by the fact that the agreements were signed by the Davises and not anyone at TWC. The agreements also provided the employer with the unilateral right to change or modify the agreements at any time and without notice to the Davises.

Further, there was “the mere existence of the three separate agreements to arbitrate, a circumstance the trial court found confusing,” the panel said. “Moreover, each of the three agreements has problems within itself,” including a reference to the “Act” without specifying which act.

The court also noted several inconsistencies between the agreements. For example, the second agreement has a provision precluding class, collective or joint action lawsuits, but that provision doesn’t appear in the other two agreements, while the first and second agreements contain an express waiver of the right to jury trial but the third agreement does not.

Finally, the arbitration provisions feature language that could be read to preclude Private Attorneys General Act representative actions (such as “the arbitrator will hear only … individual claims and does not have the authority to fashion a proceeding as a class or collective action”), the panel said.

The court affirmed the order denying the employer’s motion to compel arbitration.

To read the opinion in Davis v. TWC Dealer Group, Inc., click here.

Why it matters: The appellate court’s decision provides a road map for employers in how not to draft an arbitration agreement. The panel decried the format, the font size and the language of the arbitration provisions, as well as the manner in which it was presented to the plaintiffs and the fact that three different agreements were handed to three employees on the same day.