In Baltazar v. Forever 21, Inc., No S208345 (Cal. Mar. 28, 2016) (click here for a copy of the decision), the California Supreme Court found that an arbitration agreement in an employment application was not substantively unconscionable. I expect this Baltazar case will become a leading California case regarding the unconscionability doctrine (and frequently-cited by corporate defendants and employers seeking to enforce an arbitration clause in California). Before the court applied the law to the facts, the court set forth a detailed explanation of unconscionability standards. When discussing unconscionability, the court cautioned that modern commerce depended on the enforceability of contracts, and not all one-sided contract terms are unconscionable.
In Baltazar, the court addressed three claims of substantive unconscionability:
1) the arbitration agreement allowed the parties to seek provisional, injunctive relief in court.
The trial court believed this clause was one-sided and tended to favor the employer because employers are more likely to seek injunctive relief in court to stop employee competition or to protect trade secrets and intellectual property. The California Supreme Court, however, found that the clause was not unconscionable because the California code of civil procedure expressly permits parties to seek preliminary injunctive relief in court during the pendency of an arbitration proceeding. In other words, the parties’ contract terms were merely confirming what was already expressly available to both parties through the code.
2) as examples of covered claims, the arbitration agreement only listed claims that an employee would file, such as claims regarding wages or discrimination.
The California Supreme Court found no unconscionability with the list of examples of covered claims because the arbitration agreement was mutual and broader than the list of examples. The arbitration agreement required all disputes between the parties, whether initiated by the employer or employee, to be arbitrated.
3) the arbitration agreement provided for the protection of trade secrets and proprietary information.
The California Supreme Court explained that this provision is not unduly harsh because there can be a legitimate commercial need for such protections, and nothing prevented the employee from seeking protection of the employee’s own confidential information.
The California Supreme Court concluded there was nothing substantively unconscionable with the arbitration agreement.