September 9, 2020

Employers are increasingly turning to arbitration to resolve their disputes with employees, and courts are increasingly enforcing arbitration agreements purportedly agreed to by employees during their employment, even when they contain unconscionable terms and employees claim they never knew they existed in the first place. This is what recently happened in Conyer v. Hula Media Services, LLC.

In this case, the plaintiff had received an employee handbook at the beginning of his employment with Hula Media Services. He also signed an acknowledgment of receipt, agreeing to read the handbook and be bound by its terms. (The acknowledgment of receipt also said the company had the right to amend the handbook.) Notably, the employee handbook did not contain an arbitration clause.

Later that year (after he had made several complaints of sexual harassment and retaliation), he received another employee handbook, for which he also signed an acknowledgment of receipt. This revised handbook did contain an arbitration provision, although the company never informed the plaintiff that an arbitration agreement had been added, nor did the acknowledgment of receipt form state the employee handbook had been revised in any way. The arbitration agreement included, among other things, provisions that the prevailing party would be entitled to attorneys’ fees and that each party would have to pay a pro rata share of the arbitrator’s fees and costs.

The plaintiff was eventually terminated and he brought a lawsuit against the company for claims arising under the California Fair Employment and Housing Act (“FEHA”). The company filed a motion to compel arbitration, based on the arbitration provision in the employee handbook, but the plaintiff argued he did not know the employee handbook had been revised to include an arbitration clause, and he would not have agreed to it if he had known.

The trial court sided with the plaintiff and denied the motion to compel arbitration, finding it was reasonable for the plaintiff to assume the second employee handbook was simply part of a routine distribution, especially since the acknowledgment of receipt form did not state the handbook had been revised and no one at the company informed him it had been revised.

The defendant appealed, and on August 26, 2020, the California Court of Appeal reversed the trial court’s decision and held that the arbitration agreement was enforceable. The court held that an employer has no duty to point out an arbitration provision, and since the plaintiff had a duty to read the employee handbook and had agreed to be bound by its terms, his failure to do did not affect the arbitration agreement’s enforceability.

The plaintiff argued that the arbitration agreement was unconscionable, and so should not be enforced. He pointed out that he was unable to negotiate the terms of the employee handbook, so there was unequal bargaining power. He also argued that requiring a plaintiff to pay a pro rata share of the arbitrator’s costs and fees violated California law, since a plaintiff who files claims under the FEHA cannot be compelled to pay costs and fees in an amount more than it would cost to file a lawsuit in court. He further argued the provision awarding attorneys’ fees to the prevailing party was illegal, since defendants in FEHA cases are only allowed to recover attorneys’ fees when the plaintiff’s claims are frivolous, unreasonable, or groundless.

Even though the court acknowledged that these provisions were unconscionable and thus unenforceable, the court held that those parts could simply be severed, leaving the rest of the arbitration agreement enforceable.

This decision is a warning sign to employees that they must read all documents received from their employers before signing them. Failure to do so is not an excuse, and employees will still be bound to what they sign.

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This article is based on the law as of the date posted at the top of the article. This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.