Last month, the Ninth Circuit issued a notable opinion addressing the enforceability of arbitration agreements in Poublon v. C.H. Robinson Co., 846 F.3d 1251 (9th Cir. 2017), mandate issued (Feb. 24, 2017).  In Poublon, the employee filed a class action even though she signed a dispute resolution agreement that prohibited representative actions and required her to mediate and arbitrate all other claims.  The court evaluated the agreement to determine if it was unconscionable under California law, which looks at both procedural and substantive unconscionability on a sliding scale.  Although the court held that a few provisions were substantively unconscionable, the court severed and reformed the offending provisions and largely upheld the dispute resolution agreement.

First, the court observed that the dispute resolution agreement in this case presented only negligible procedural unconscionability.  That the employee was not provided copies of the American Arbitration Association’s (the “AAA’s”) applicable rules or the employer’s Arbitration Procedure did not render the agreement oppressive.^[1]  The court was also not persuaded that the employee was forced to sign the agreement to maintain her employment.  Rather the supervisor told her that if she failed to sign the agreement, she would not receive a bonus.

Of the eight provisions the employee alleged were substantively unconscionable, the court held six to be lawful including the conditions addressing venue, confidentiality, sanctions, unilateral modification by the company, and limitations on discovery.  As for the other two provisions—the waiver of PAGA representative claims, and a one-sided carve-out that allowed the company to seek injunctive relief in court—the court found that neither had irrevocably tainted the parties’ agreement and could be severed or reinterpreted accordingly.  The Ninth Circuit recognized that the PAGA claim waiver is unenforceable (per Iskanian), but it did not follow that the waiver was substantively unconscionable.  Thus, the court held the dispute resolution agreement was valid and enforceable, and that the parties waived any claims unless they were submitted to mediation followed by binding arbitration if mediation was unsuccessful.

The Ninth Circuit’s thorough opinion is rife with lessons and reminders for employers on drafting and defending arbitration agreements. Arbitration provisions may be incorporated in documents other than an offer of employment, like the incentive agreement here, and supervisors should be trained to address questions if employees ask whether they are required to sign the agreements.  Employers considering arbitration agreements with provisions on venue,^[2] confidentiality, sanctions, unilateral modification, and limitations on discovery should read the corresponding discussions in Poublon, which are replete with citations to California case law.  Employers may also consider including language that confers the arbitrator with authority to deviate from strict terms when necessary, like the venue and discovery provisions here.  Clauses that allow an arbitrator to impose different conditions upon a showing “good cause” or for “good reason” may allay a court’s concerns that the agreement would preclude the employee from a fair opportunity to vindicate her rights.  Finally, as this opinion shows, severability or reformation clauses are frequently appropriate in arbitration agreements as the law in this area continues to evolve.

^[1] Compare Flores v. Nature’s Best Distribution, LLC, 7 Cal. App. 5th 1, 11 (2016), review filed (Feb. 7, 2017) (where the failure to specify the type or version of AAA rules, attach a copy of the governing rules, or provide information such as a website link, perpetuated ambiguities in the arbitration agreement).

^[2]Poublon’s discussion of venue may be affected by SB 1241, effective January 1, 2007, and codified in Labor Code section 925.  That section prohibits “an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would require the employee to adjudicate outside of California a claim arising in California,” among other things.  Under the Ninth Circuit’s logic, a contractual provision that violates this section could arguably be contrary to public policy yet also not violate conscionability standards.