Last week, in a 2-to-1 decision, the Ninth Circuit affirmed a district court’s refusal to enforce an employment arbitration agreement. See Zaborowski v. MHN Government Services, Inc., No. 13-15671 (9th Cir. Dec. 17, 2014) (click here for a copy of the decision). The Ninth Circuit agreed with the district court that the employment arbitration agreement contained several unconscionable terms, including: a shortened 6-month limitations period; a waiver of punitive damages; a $2600 filing fee; a fee-shifting clause which awards attorneys fees to the prevailing party; and an arbitrator-selection clause which allowed the employer to unilaterally choose a pool of three arbitrators from which the employee could then select its choice of arbitrator. In light of these multiple unconscionable provisions, the Ninth Circuit found that the lower court did not abuse its discretion in refusing to sever the unconscionable terms.
One judge dissented in part and believed that the district court should have severed the unconscionable terms and compelled arbitration. Under California law, courts generally strike down an entire contract instead of severing problematic provisions if the contract contains multiple unconscionable terms, like the contract at issue. However, the dissenting judge, relying on the Supreme Court’s Concepcion decision, found that the Federal Arbitration Act preempted this California anti-severance law because this state law has a “disproportionate impact on agreement agreements.”
In my opinion, this is a very broad (and vague) preemption standard followed by the dissenting judge, and in the wake of Concepcion, some lower courts following this broad preemption standard have compelled arbitration in circumstances where pre-Concepcion courts would have refused to compel arbitration. Concepcion is often viewed as a case that in effect eliminates class actions, but Concepcion is also having an impact far beyond the class action context. Concepcion is also changing (and destabilizing) arbitration law with respect to a court’s review of individual arbitration agreements. I have written about this preemption aspect of Concepcion in a recent article, More than Class Action Killers: The Impact of Concepcion and American Express on Employment Arbitration, which was recently published in Berkeley’s Journal of Employment and Labor Law (click here for a copy of the article).