December 20, 2013

Are some contracts more equal than others?

By Deborah J. La Fetra Senior Attorney

Maribel Baltazar worked in one of clothing retailer Forever 21’s distribution warehouses.  She alleges that she suffered discrimination and harassment on the job, ultimately leading to her quitting.  She sued Forever 21 and certain co-workers, who then moved to compel arbitration pursuant to Baltazar’s employment contract, which specifically said that she agreed to resolve any work-related disputes in arbitration.  Baltazar argued that the agreement was unconscionable and should be voided.  The trial court accepted this theory, but the Court of Appeal reversed, holding that although the doctrine of unconscionability survives the United States Supreme Court decision in AT&T Mobility v. Concepcion, the arbitration provision in Baltazar’s employment contract was not, in fact, unconscionable.  Concepcion firmly established that all state and federal courts must treat arbitration contracts on an “equal footing” with all other types of contracts, and may not disfavor them in any way.  The California Supreme Court granted review in Baltazar v. Forever 21 to decide whether an employment arbitration agreement is unconscionable for “lack of mutuality” if it contains a clause allowing either party to seek provisional injunctive relief in the courts and the employer is more likely to do so.

As PLF explains in its amicus brief, filed today in support of Forever 21, this case turns on the meaning of mutuality.  Importantly, the Court must apply general contract law on this point; it cannot impose a special rule that disfavors arbitration contracts, whether it does so as a matter of law, or as a matter of practical application.  First, mutuality applies to the contract as a whole; not each and every provision considered independently.  That is, Baltazar agreed to expend her labor in exchange for Forever 21’s agreement to pay her.  This mutuality of obligation covers all provisions of the contract.  Second, even if the Court examines each provision individually, it is mutual so long as both parties have a right under that provision; there is no need to speculate as to whether one party more than another is likely to invoke that provision.  Ultimately, PLF argues that the Court should hold that Concepcion abrogates the mutuality test it announced in Armendariz v. Foundation Health Psychcare Svcs. Inc. (2000), because the test effectively disfavors arbitration contracts by violating general contract law principles and rendering arbitration contracts unconscionable under circumstances where other types of contracts are upheld.

What to read next