Originally from Employment Arbitration - 2nd Edition

The Defense of Unconscionability

Thomas E. Carbonneau

Unconscionability under state contract law has become the standard by which to measure the validity and enforceability of employment arbitration agreements, as well as other contracts of arbitration. Because of the imbalance between the parties, fairness has become a significant factor in the legal assessment of employment arbitration agreements. Courts are concerned that overly unilateral provisions will overwhelm the rights of employees and fail to provide them with a means for vindicating their rights as required by Gilmer. Unfairness does not reside in the unilateral and adhesionary imposition of the contract of arbitration, but rather in its actual terms and conditions. As the California state Supreme Court ruled in Armendariz, certain minimum requirements of due process must be met in order for mandatory employment arbitration to be valid. This general position has a relatively wide currency in the current decisional law.

Parilla v. IAP Worldwide Servs. VI, Inc. reflects both the increased judicial scrutiny that applies to employment arbitration agreements and the courts’ continued allegiance to the emphatic federal policy on arbitration. There, the court held that an employment arbitration agreement was unconscionable because of its thirty-day notice provision and its requirement that each party pay its own costs, expenses, and attorney’s fees. The agreement also suggested that the loser in arbitration might be obligated to pay all of the costs of arbitration. The court ruled that these aspects of the arbitral clause favored the employer too greatly and placed the employee at a substantial disadvantage. The court nevertheless upheld a provision in the contract for confidentiality in any Title VII arbitration and for the waiver of recourse to the EEOC in such a setting. In the court’s view, the latter requirement was equivalent to a waiver of judicial relief.