Job Applicant's Mandatory Arbitration Agreement Was Enforceable

Although an applicant was required to sign an agreement to arbitrate all employment-related disputes as a condition of being hired for a job, the agreement was enforceable because it contained no unfair terms, the California Court of Appeal ruled.

The take-it-or-leave-it nature of the agreement rendered it procedurally suspect, but California law requires the presence of both procedural and substantive unfairness to invalidate an arbitration agreement, the court said.

In March 2007, the plaintiff applied for a janitorial position with L.A. Fitness. To be considered for employment, she had to complete and sign an application and arbitration agreement. The document explained that applicants would not be considered for employment unless they agreed to arbitrate any employment-related disputes.

The plaintiff signed the agreement on March 9, 2007, and was subsequently hired. She worked in the company's maintenance department until she was fired in August 2011. In November 2012, she filed a complaint against her former employer in court, alleging breach of contract, wrongful termination and other claims. She sought damages for lost wages and benefits and emotional distress.

In response to her complaint, L.A. Fitness filed a motion to compel arbitration, which included a copy of the employment application and arbitration agreement that the plaintiff had signed and a copy of the arbitration procedures. The trial court granted the motion, and the plaintiff appealed.

Unconscionability 

The plaintiff argued on appeal that the arbitration agreement was unconscionable and therefore unenforceable. The appellate court disagreed and affirmed the trial court's order compelling arbitration.

The court noted that the doctrine of unconscionability refers to an absence of meaningful choice by one party, together with contract terms that are unreasonably favorable to the other party. There is both a procedural and substantive aspect of unconscionability, the court said. "The former focuses on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results."

Both types of unconscionability must be present for a court to exercise its discretion to refuse to enforce a contract or clause, the court said.

[SHRM members-only HR Q&A: What are the California rules regarding mandatory arbitration agreements, and how do they differ from federal law?]

To decide whether an arbitration agreement is procedurally unconscionable, the court first asks whether the contract is one of adhesion—that is, a standardized contract drafted by the party of superior bargaining strength requiring the other party to be bound by the contract as written.

The court concluded that L.A. Fitness's arbitration agreement clearly was an adhesion contract. It was imposed on the plaintiff as a condition of employment without any opportunity for the plaintiff to negotiate. Therefore, the requirement of procedural unconscionability had been met. However, the court failed to find any substantive unconscionability.

"As a bright-line rule, if the agreement is not mutual—that is, it requires the employee to submit to arbitration but allows the employer its choice of forum, or it limits the type of damages an employee can recover in arbitration but contains no similar limitation on the employer—it is substantively unconscionable," the court said.

It reviewed L.A. Fitness's arbitration procedures and found nothing about them to be unfair. Under the procedures, both parties were required to arbitrate any disputes, and there were no unfair limitations on the deadline for filing claims or the type of relief available.

In addition, the arbitration agreement identified the applicable rules and contained a clear waiver of the right to a jury trial, the court noted.

The court concluded by stating that while it understood the plaintiff's frustration in having to agree to arbitration before L.A. Fitness would even consider her application, "California law endorses such contracts of adhesion if—as is the case here—the terms are not oppressive."

Marmolejo v. Fitness Intl. LLC, Calif. Ct. App., No. E064190 (March 7, 2018).

Professional Pointer: California law regarding arbitration agreements contains many specific requirements, and those rules are often refined by court decisions. Organizations should therefore monitor any mandatory arbitration agreements used to ensure their continuing legal validity and enforceability.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.

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