Arbitration Agreements: Enforceability Determinations

Posted in Arbitration Agreements on October 29, 2008

Ontiveros v. DHL Express (USA), Inc., 164 Cal.App.4th 494, 79 Cal.Rptr.3d 471, 103 Fair Empl.Prac.Cas. (BNA) 1300, 08 Cal. Daily Op. Serv. 8379, 2008 Daily Journal D.A.R. 10,045

An aircraft operations supervisor who left her employment after taking a short-term disability leave filed an action against her former employer, alleging sex/gender discrimination and harassment and retaliation for opposing forbidden practices. The plaintiff further alleged that the defendant had failed to prevent her from being subjected to ongoing severe sexual harassment and retaliation following her promotion, and that the employer had aided and abetted in the harassment.

The employer moved to compel arbitration based upon an arbitration agreement the plaintiff had signed upon being hired, which provided that any disputes relating to the applicability, enforceability or formation of the agreement would be decided by the arbitrator.

The trial court denied the motion to compel arbitration and the court of appeal affirmed, holding that the provision was unconscionable:

“Defendant contends that, in light of the provision in the arbitration agreement that the arbitrator “shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation” of the agreement, an arbitrator, not the trial court, should have determined whether a valid agreement to arbitrate exists.
. . .
We agree with the analysis of the appellate court in Murphy and find, in the present case-which also indisputably involves a contract of adhesion that the provision in the arbitration agreement giving the arbitrator exclusive authority to decide enforceability issues is unconscionable and, therefore, unenforceable. We have a genuine concern about the potential for the inequitable use of such arbitration provisions in areas, such as employment, where the parties are not at arm’s length and do not have equal bargaining power. In such situations, in which one party tends to be a repeat player, the arbitrator has a unique self-interest in deciding that a dispute is arbitrable.
. . .
Indeed, Justice Black spoke to this concern over 40 years ago in Prima Paint v. Flood & Conklin (1967) 388 U.S. 395, 403-406, 87 S.Ct. 1801, 18 L.Ed.2d 1270(Prima Paint ), . . . . Justice Black stated: “The only advantage of submitting the issue of fraud to arbitration is for the arbitrators. Their compensation corresponds to the volume of arbitration they perform. If they determine that a contract is void because of fraud, there is nothing further for them to arbitrate. I think it raises serious questions of due process to submit to an arbitrator an issue which will determine his compensation.”
. . .
Justice Black’s concerns are relevant to the issue we face today: whether arbitrators should be permitted to decide the issue of unconscionability in an arbitration agreement, particularly one, like that before us, which is a contract of adhesion. Indeed, an arbitrator who finds an arbitration agreement unconscionable would not only have nothing further to arbitrate, but could also reasonably expect to obtain less business in the future, at least from the provider in question.”