March 28, 2016

California Supreme Court upholds arbitration agreement!

By Deborah J. La Fetra Senior Attorney

Maribel Baltazar worked in a distribution warehouse for clothing retailer Forever 21.  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 California Court of Appeal rejected this argument and today, in Baltazar v. Forever 21, the California Supreme Court unanimously affirmed.

It appeared during the briefing phase of the case that the primary issue was 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.  PLF filed an amicus brief, arguing that the mutuality test created by the California Supreme Court in Armendariz v. Foundation Health Psychcare Svcs. Inc. (2000), has been rendered obsolete by subsequent U.S. Supreme Court cases, particularly AT&T Mobility v. Concepcion (2011), because the mutuality 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.

The opinion authored by Justice Kruger held that the contract simply invoked remedies expressly authorized by statute and therefore could not be unconscionable.  It also rejected Baltazar’s argument that the contract’s listing of issues subject to arbitration was unfairly one-sided because it addressed claims more likely to be brought by employees, not employers.  The court explained that this makes good sense, given that the purpose of the expressly non-exclusive list was to put the employee on notice of the types of disputes that would be covered.  Finally, the court rejected Baltazar’s claim that a limited confidentiality clause was unconscionable, because “agreements to protect sensitive information are a regular feature of modern litigation, and they carry with them no inherent unfairness.”

In this way, the court successfully dodged the main issue of whether the Armendariz mutuality test remains viable.  And, for the first time, the court actually found a “legitimate commercial need” that justified a provision that provides greater protection to the employer:  the limitation on disclosure of the employer’s confidential information.  This “legitimate commercial need” exemption to the Armendariz mutuality test had been universally disregarded by California courts prior to today’s decision.  Moreover, the court expressly recognized the need for certainty in contract law:  “Commerce depends on the enforceability, in most instances, of a duly executed written contract.  A party cannot avoid a contractual obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain.”  All in all, a victory for the freedom of contract, even as the continued existence of the mutuality test ensures future litigation.

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