One-Sided Arbitration Agreement Held Invalid

What kinds of provisions in arbitration agreements will cause the courts to invalidate them?  The Court of Appeal in the recent case of Baxter v. Genworth North America Corporation analyzed and rejected several of them, in upholding the denial of a motion to compel arbitration of an employee’s wrongful termination and discrimination claims.  Baxter v. Genworth North America (October 26, 2017) --- Cal.Rptr.3d ----.

Genworth required employees to sign an agreement upon being hired that they participate in a four-step process before asserting any claims, including a meeting with the company’s managers and a mandatory mediation.  Further, if the employees ultimately filed a lawsuit the agreement required that they do so within a period of less than the one-year statute of limitations under the Fair Employment and Housing Act.  The court found the one-sided terms under the agreement as “substantively unconscionable” and unenforceable.

First, the arbitration guidelines in Genworth prohibited employees and their attorneys from obtaining information outside the formal discovery process, which meant that employees were prohibited from interviewing witnesses to gather information to evaluate their claims.  According to the court, this one-sided prohibition interfered with the right of employees to full and fair discovery of their claims under the state anti-discrimination law.  The agreement also limited parties to only ten interrogatories, five requests for documents, and two depositions for a total of no more than eight hours, which the court found insufficient to enable the employee to vindicate their claims. The court found the provisions to be invalid and that employees’ ability to prove their claims would be frustrated even though the agreement provided that the arbitrator could provide greater discovery.

Arbitration remains a useful tool to avoid the time and expense of litigation, but arbitration agreements must be carefully crafted to avoid one-sided terms such as the one identified in Genworth.  Employers who adopt agreements that seek to force an employee into an inferior forum, as opposed to one with only a substitute for the judicial forum, face the invalidation of their agreements as in Genworth.

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