Employment: California Appeals Court's Analysis Reverses Unconscionability Finding (Web)

In Huskey v. Hollywood Entertainment Corp., H029401, 2006 Cal. App. Unpub. LEXIS 5752 (June 30, 2006), an unpublished opinion, California's Sixth District Court of Appeal held that an adhesive arbitration agreement was not unconscionable because the requisite mutuality existed, since both the employee and employer were bound by the agreement to arbitrate their employment-related claims.

Jessica Huskey was hired as a general service representative by Hollywood Entertainment Corp. and was required to sign a brief arbitration agreement setting forth the general rules of Hollywood's process.

After Huskey filed a Superior Court complaint alleging sexual harassment, among other claims, Hollywood filed its motion to compel arbitration. The motion was denied because, the court ruled, the arbitration agreement was unconscionable because it "reflected a lack of mutuality."

In its June 30, 2006, opinion, the state appeals court first looks to see whether the arbitration agreement satisfies the requirements articulated in Armendariz v. Foundation Health Psychcare Services Inc., 24 Cal. 4th 83 (2000).

Huskey contended that the arbitration agreement doesn't sufficiently provide for a neutral arbitrator "because it allows Hollywood to chose [sic] the 'appropriate arbitration provider.'"

The unanimous appeals panel disposed of this argument, noting, among other things, that Hollywood said it intended to use JAMS or the American Arbitration Association--the two national ADR providers that Huskey specifically wanted identified in the agreement.

In dicta, the court proposes that it “may be the better practice” to make sure that proposed panels of arbitrators are chosen from well-known ADR providers such as JAMS and AAA. The court, however, did not make the use of one of the providers a requirement, and it refused to fashion a rule requiring JAMS or AAA to be explicitly named in the arbitration agreement.

The opinion also dismisses worries about the likelihood of a "repeat player effect," since Huskey is involved in the arbitrator selection process and can veto up to 14 proposed neutral arbitrators under the agreement.

Huskey also complains that the agreement does not meet the minimal standard for adequate discovery, and would prevent her from vindicating her statutory rights. The panel disagrees. It states that the discovery limit of three depositions and 20 sets of interrogatories is not too severe in light of a provision allowing the arbitrator to allow extra discovery upon a showing of "substantial need."

Next, the court analyzes unconscionability. The analysis’s first prong looks at the procedural aspects.

The opinion, written by Associate Justice Patricia Bamattre-Manoukian, determines that the agreement to arbitrate was an adhesion contract. But it says that no coercive tactics were used to secure Huskey's signature, and the contract was clear and readable, containing no "surprises."

The court next turned to the substantive prong of the unconscionability analysis in order to determine if there was a lack of mutuality. Under Armendariz, "'an adhesive context lacks basic fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences. . . . '"

The one-page contract, according to the panel’s opinion, states that Hollywood "agrees that this agreement is equally applicable to Hollywood who will utilize arbitration for any employment related claim Hollywood may have against the Employee."

This express language, followed by a signature from Hollywood, makes it clear that Hollywood is equally bound by the agreement to arbitrate its claims; thus the requisite degree of mutuality exists.

Since both the substantive and procedural prongs must be met before a court can refuse to enforce an agreement for unconscionability, the court reverses the lower court's order denying Hollywood's petition to compel arbitration.

The panel advises that it may be prudent to include both employer and employee in all of the examples and rules in the agreement, so that it is clear that both are bound to all the terms. But, once again, the appeals court was unwilling to make this a requirement, which the opinion states is unnecessary.

–John Ousley, CPR Intern