California Supreme Court Upholds Arbitration Agreement

By Evan Mix, © Sheppard Mullin Mar 31, 2016
On March 28, 2016, the California Supreme Court handed down a long-awaited opinion in Baltazar v. Forever 21 (No. S208345). Baltazar’s most important holding is that an arbitration agreement is not unconscionable merely because it restates existing law. This ruling resolves a disagreement between state appellate courts that probably should never have arisen in the first place.

Maribel Baltazar was hired by Forever 21 in November 2007. Like all Forever 21 employees, she was required to sign an arbitration agreement that subjected all employment-related claims of either party to arbitration. Baltazar quit in January 2011, then sued Forever 21 for harassment, race and sex discrimination, and retaliation she allegedly suffered during her employment. Forever 21 moved to compel arbitration consistent with the arbitration agreement Baltazar signed when she was hired. Baltazar argued that the agreement was unconscionable and thus unenforceable, and the trial court agreed. The Court of Appeal reversed, and the California Supreme Court affirmed that ruling.

At the center of the dispute was a clause in the agreement explaining that, “Pursuant to California Code of Civil Procedure 1281.8, either party hereto may apply to a California court for any provisional remedy, including a temporary restraining order or preliminary injunction.” Baltazar argued that this clause rendered the agreement unconscionable because in practice, the employer is more likely to seek such a remedy than the employee. A Court of Appeal held as much in 2010 in Trivedi v. Curexo Technology Corp.

The Baltazar Court was not convinced: “an arbitration agreement is not substantively unconscionable simply because it confirms the parties’ ability to invoke undisputed statutory rights.” In so holding, the court disapproved the contrary rule of Trivedi.

The court rejected a number of other arguments raised by Baltazar. In particular, it held:

  • The arbitration agreement expressly subjected all employment-related claims of either party to arbitration, so it was not unconscionable on the grounds that it used, as examples, only claims like harassment and discrimination that an employee would raise against an employer.
  • It is not unconscionable to incorporate by reference a set of procedural rules (in this case, those of the American Arbitration Association) unless those rules themselves somehow make the agreement unconscionable.
Generally, Baltazar seems to reject a recent trend toward invalidating arbitration agreements for highly technical, abstract, or obscure reasons with little or no impact on the matter under dispute. Instead, it emphasizes the language of the arbitration agreement and its concrete legal effect. This is welcome news for anyone drafting an arbitration agreement and anyone seeking to enforce it.

Evan Mix is an attorney in the San Diego office of Sheppard Mullin. Republished with permission. © 2016 Sheppard Mullin. All rights reserved. 

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