In yet another decision explaining what is, and is not, acceptable in employment-related mandatory arbitration procedures, the Ninth Circuit held that the program utilized by law firm O’Melveny & Myers (OMM) was both procedurally and substantively unconscionable.
In yet another decision explaining what is, and is not, acceptable in employment-related mandatory arbitration procedures, the Ninth Circuit held that the program utilized by law firm O’Melveny & Myers (OMM) was both procedurally and substantively unconscionable. Davis v. O’Melveny & Myers (9th Cir. 5/14/07).
In this case, the plaintiff, Jacqueline Davis, was a paralegal at OMM. Three years after Davis’ employment started, OMM instituted a Dispute Resolution Program (DRP), which provided for mandatory arbitration as the exclusive remedy for most employment-related claims. Approximately a year and a half after OMM instituted the DRP, Davis sued the firm in federal court, alleging violations of the Fair Labor Standards Act (FLSA) and other federal and state labor statutes. There was no dispute regarding whether Davis' claims were subject to the DRP; the only issue was whether the DRP was enforceable.
The federal trial court found the DRP enforceable and ordered Davis to submit her claims to arbitration. The Ninth Circuit reversed this decision, finding the DRP both procedurally and substantively unconscionable. As for procedural unconscionability, OMM provided the DRP to its employees on a “take it or leave it” basis, with no additional consideration. Employees had no opportunity to negotiate the agreement. OMM did provide employees with three months “notice” of implementation of the DRP, so that any employee who did not want to be subject to the DRP could find work elsewhere. Nevertheless, the Ninth Circuit found the DRP to be procedurally unconscionable.
The court then addressed the substantive unconscionability of the DRP. The DRP had a “notice” provision, requiring claimants to provide a written notice of any claim, along with a demand for mediation, within one year after the claimant knows or could reasonably know, of the existence of the claim. Under the DRP, mediation was a mandatory prerequisite to arbitration. In essence, the DRP provided a shorter statute of limitations than is permitted by statute. The court found this provision to be unconscionable for various reasons, including the fact that it would appear to preclude claims that may be based upon “continuing violations.”
The DRP also contained an extremely broad confidentiality provision. As written, the confidentiality provision precluded the employee from even contacting other employees for assistance and support with the claim. While the court noted that confidentiality, itself, does not create unconscionability, the provision in the DRP was written too broadly.
The DRP contained a nonmutual provision permitting OMM to seek injunctive relief. Moreover, the provision allowed OMM to seek “other equitable relief” for not only violations of the attorney-client and attorney work-product privileges, but also for “the disclosure of other confidential information.” The court held that this provision was substantively unconscionable because it was one-sided and written too broadly.
The DRP carved out an exception and permitted the parties to file certain administrative charges, but did not include charges for violations of wage and hour laws on the list of exceptions. The court held that the provision precluding individuals from filing administrative charges for wage and hour violations was substantively unconscionable.
The court then considered whether the void and unconscionable aspects of the DRP could be severed. Although the court noted that most of the terms of the DRP were expressly mutual, it found that the numerous aspects of the DRP that were unconscionable rendered the agreement unenforceable.
Employers' Bottom Line:
The topic of mandatory arbitration agreements, what they say and how they are implemented, continues to evolve. As such, any employer who either has in place a mandatory arbitration agreement or wants to implement one should make certain to obtain expert legal counsel to review and evaluate the agreement. Should you have any questions, please contact the Ford & Harrison attorney with whom you typically work or the author of this Alert, Helene Wasserman, at firstname.lastname@example.org or (213) 237-2403. Helene is the host of the Employer Helpcast, which is a "one stop website" for both "nuts and bolts" employment law advice and insight into new legal developments affecting employers.