The Ninth Circuit has affirmed a district court’s denial of defendant grocery company’s motion to compel arbitration in an action asserting claims under California labor law on behalf of the plaintiff and a proposed class of other grocery employees. Chavarria v. Ralphs Grocery Store (9th Cir. 11-56673 10/28/13)
Ralph sought to compel arbitration of an individual claim pursuant to its arbitration policy, to which all employees acceded upon submitting applications for employment. The 9th Circuit affirmed the district court’s holding that the arbitration policy was unconscionable under California contract law and therefore unenforceable. It was procedurally unconscionable because it was a condition of applying for employment and was presented on a “take it or leave it” basis.In addition, its terms were not provided to the plaintiff until three weeks after she had agreed to be bound by it. It was substantively unconscionable because it was unjustifiably one-sided to such an extent that it “shocked the conscience.” Specifically, the arbitrator selection process would always produce an arbitrator proposed by the defendant in employee-initiated arbitration proceedings; the policy precluded institutional arbitration administrators, which have established rules and procedures to select a neutral arbitrator; and the policy’s arbitrator-fee-apportionment provision would have the effect of pricing employees out of the dispute resolution process.
The decision distinguishes Kilgore v. Key Bank National Ass’n (9th Cir. 2013) 718 F.3d 1052 (the mere risk that plaintiff will face prohibitive costs is too speculative to justify invalidating arbitration agreement), on the ground that the fee provision was not speculative and there were other unconscionable terms.
State law supporting the unconsionability holding was not preempted by the FAA because it applies to contracts generally and did not in practice impact arbitration agreements disproportionately. The Supreme Court’s decision in American Express Corp. v. Italian Colors Restaurant (2013) __ U.S.__, 133 S. Ct. 2304 did not preclude the court from considering the cost that the defendant’s arbitration agreement imposed on employees in order for them to bring a claim.
The matter is remanded for further proceedings.
© Walsh & Walsh, P.C., federal appeals, arbitration