California Court Invalidates Arbitration Agreement Based on Unconscionable Terms

In the case of Trivedi v. Curexo Technology Corp. published on October 20, 2010, a California appellate court refused to enforce an arbitration provision in an employment contract on the ground that it contained multiple unconscionable provisions. By permitting it to pursue injunctive relief in court, and by including a provision in the agreement requiring that the prevailing party be awarded its attorneys’ fees and costs, the employer forfeited its ability to enforce the agreement when the employee sued for discrimination and wrongful termination.

The court first concluded that with respect to the attorneys' fees provision, the employee was placed at greater risk in arbitration than if he pursued a claim in court because he could only be held responsible for the employer’s attorneys’ fees in a judicial action if his claim was determined to be groundless or brought in bad faith. By providing for an award of attorneys’ fees automatically to the prevailing party, the agreement therefore "served as a vehicle for the waiver of statutory rights" created by the Fair Employment & Housing Act, under which the employee’s suit was asserted. The court further concluded that because it was "more likely that the employer would seek injunctive relief" than the employee, the agreement was unlawfully one-sided.

Notably, the court refused to sever these two provisions and enforce the remainder of the agreement. It also found that the agreement was "procedurally unconscionable" because it was imposed by the employer unilaterally and without providing the employee with a copy of the American Arbitration Association Rules that would govern any arbitration proceeding. The case accordingly represents another example of judicial hostility to arbitration agreements which do not merely provide for a substitute forum for the employee to resolve their claims.

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