The California Supreme Court surprisingly upheld an arbitration agreement in a pre-printed, non-negotiable employment agreement which broadly required the employee to arbitrate any employment-related disputes with the company in the case of Baltazar v. Forever 21 (S208345, March 28, 2016). Although the employee, Maribel Baltazar, at first refused to sign the agreement as she did not want to be bound to arbitrate, she begrudgingly relented, signed and was hired. She later resigned and sued the company for sexual harassment, sex discrimination, and retaliation.
The trial court denied a motion to compel arbitration, finding procedural unconscionability because the employee was required to sign a pre-printed, non-negotiable agreement as a condition of employment and she was not provided with a copy of the arbitration rules. The trial court also found substantive unconscionability because the agreement gave the employer greater protections with the right to seek injunctive relief to protect trade secrets and required arbitration under the rules of the American Arbitration Association even if the court found the agreement unenforceable. This was an expected result in a state trial court based upon the existing body of appellate decisions which are hostile to forced arbitration in employment and consumer settings.
However, the Court of Appeal reversed the trial court. Although agreeing that the employee did not have meaningful choice in signing the employment agreement, the appellate court disagreed with the trial court’s conclusion that the agreement was substantively unconscionable because it permitted either party to seek injunctive relief, even if such relief more often served the interests of the employer rather than the employee. Further, even if the AAA rules were found unenforceable, they could still could arbitrate under the California Arbitration Act.