CA Supreme Court sees arbitration contract as unfairly signed

Late this summer, the California Supreme Court considered an agreement that limited an employee’s options for disputing his pay. The agreement forced the employee into mandatory arbitration more like a complex and expensive lawsuit than the cheaper, streamlined hearings described in California statutes.

The Court tossed out the agreement, not for requiring an unfair procedure but because the agreement signed by the employee was so hard to understand and was signed in such misleading circumstances as to be “unconscionable.”

Car mechanic signs dense papers while clerk waits

The plaintiff had been an auto technician at a car dealership for three years when a low-level human resources clerk (“porter”) brought him a stack of wordy papers. The porter said the mechanic was supposed to sign them while the porter waited.

After the mechanic’s time at the job, he filed with the state Labor Commission to recover pay he believed the dealership owed him. It turned out the mechanic had signed away his right to the Labor Commission’s process and committed himself to arbitration.

Supreme Court finds contract unconscionable

California’s highest court gave a list of factors making the signing of the contract “unconscionable,” meaning so unfair or oppressive that it seems abusive. They include:

• Paid by the repair, the mechanic would lose pay by taking time to understand the contract.
• The long, one-paragraph agreement in extremely small font was densely tangled with legal jargon and references to statutes.
• Understanding, explaining, appealing or even following the contract’s provisions would require specialized legal expertise only available from counsel.
• He received the contract along with other documents and without explanation as if it was not important.
• Sending the porter to have the mechanic sign the papers implied the mechanic need not read the documents or consult an attorney about them.
• The junior position of the porter and the need to sign the agreement while he waited implied the employer neither welcomed nor expected to answer questions.

The court’s decision is another warning to employees to get a thorough legal examination and explanation of contracts you sign. The court’s rejection also reminds employers that an employee’s signing of a contract does not automatically make it actionable.