Court of Appeal Finds Arbitration Clause in Employment Contract Unenforceable


The California Court of Appeal, Sixth Appellate District, recently considered whether an arbitration agreement in an employment contract is unenforceable in an employee¡¦s lawsuit alleging violation of both public and private rights. (Abramson v. Juniper Networks, Inc. (2004 Daily Journal, D.A.R. 1411, Cal.App. 6 Dist., February 6, 2004.))


When Employee, David Abramson, began working for Employer, Juniper Networks, he signed an offer letter and an employment agreement, both of which contained arbitration clauses. After his employment was terminated, Employee sued, claiming discrimination, termination in violation of public policy, breach of contract, fraud, misrepresentation, unfair competition, and defamation. The trial court granted judgment to Employer because Employee failed to exhaust the arbitration remedies before going to court. Employee appealed.

Appellate Court Decision

In concluding that the arbitration agreement was unenforceable, the Court of Appeal wrote an instructive primer on the history and statutory and case law regarding enforceability of arbitration clauses in employment contracts. Based on this analysis, the Court separately addressed Employee's public right claims and his private right claims.

  • Public Rights. Employee asserted discrimination claims and termination in violation of public policy, both of which implicate unwaivable public policy claims. When an arbitration agreement seeks to compel employees to arbitrate their unwaivable public policy claims, the agreement must meet certain requirements, as set out in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83. Only one of the five Armendariz requirements is relevant here: an agreement to arbitrate public policy employment claims may not require the employee "to pay forum costs that are unique to arbitration." Here, the arbitration agreement impermissibly requires Employee to pay half the costs of the arbitration, amounting to thousands of dollars at the outset. Thus, the arbitration agreement is unenforceable with respect to Employee's claims of discrimination and termination in violation of public policy.
  • Private Rights. Employee also asserted several claims that implicate private, waivable rights, such as breach of contract, fraud, misrepresentation, unfair competition, and defamation. Arbitration agreements that cover private rights are considered invalid if they are unconscionable. Here, the Court determined the arbitration agreement was unconscionable for two reasons. First, the Court considered the agreement oppressive, because Employee "lacked equal bargaining powe" to negotiate with regard to the arbitration clause ¡V the arbitration clause was presented on a "take it or leave it" basis. Second, the arbitration agreement lacked "mutuality" because it bound Employee to arbitrate all claims, while it allowed Employer to seek judicial relief on claims related to trade secrets, confidential information, and other intellectual property. The Court thus concluded that, considering the "extremely one-sided nature of the arbitration provision" and "the high degree of oppressiveness" the agreement to arbitrate is unconscionable.

The Court also concluded that, because of "[t]he taint of illegality and unconscionability," the objectionable terms in the agreement cannot be severed in order to allow enforcement of the rest of the agreement. The Court thus found the entire agreement unenforceable.

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