Court of Appeal Strikes Down Another Arbitration Agreement

Again and again, California appellate courts have held various features of employment arbitration agreements to be unconscionable and therefore unenforceable.

On February 18, 2010, in Suh v. Superior Court, the Court of Appeal held another employment agreement to be unenforceable. The court held the agreement was unenforceable because the plaintiffs were not provided an opportunity to read the agreement before they agreed to it and because the agreement limited the remedies that would otherwise be available to the plaintiffs.

Plaintiffs were anesthesiologists employed by a medical group that had contracts with a hospital to provide anesthesiology services. They filed suit and alleged they were removed from the hospital anesthesiology schedule on account of their age and on account of their national origin, which, if true, would violate California's Fair Employment and Housing Act.

The trial court granted the petition of the defendant medical group and of the defendant hospital to compel the plaintiffs to arbitrate their claims. The operative agreement specified that arbitration would be conducted in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration. Those rules specified that the arbitrator may not award "consequential, exemplary, incidental, punitive or special damages in certain types of actions, including actions arising out of employment." However, the trial court severed from the operative agreement those rules based on the trial court's determination that those rules are not enforceable.

The Court of Appeal reversed the trial court and held that the arbitration provision of the operative agreement was procedurally unconscionable because the plaintiffs were not provided a copy of the agreement before they agreed to it and substantively unconscionable because it limited the remedies potentially available to the plaintiffs. Further, the court stated, "[t]he limitation on damages in this case is so egregious and so draconian that it should not be permitted to be severed. Otherwise, parties will be encouraged to insert ignore such clauses, with the only sanction being the removal of the clause."

California appellate courts frequently address employment arbitration agreements in reported opinions. An employment arbitration agreement previously believed to be enforceable might not withstand judicial scrutiny today or in the future. Employers should therefore consider having such agreements reviewed periodically by experienced counsel.

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