Arbitration, Employment: 4/3 DCA Affirms Lower Court’s Denial Of Motion To Compel Arbitration Because, Among Other Things, Arbitration Clause Gave Arbitrator Mandatory Authority To Award Fees To Employer Even Where Fee-Shifting Statutes Favored Employe

Mandatory Language Of Fee Clause Demonstrated Substantive Unconscionability, Which Was Not Supplanted By More General Reference To JAMS Employment Rules Which Were More Discretionary In Nature.

            We commend employment attorneys to read Randall v. Veros Credit, LLC, Case No. G056463 (4^th Dist., Div. 3 Sept. 17, 2019) (unpublished), where a trial judge denied an employer’s motion to compel arbitration against an employee based on a determination that the arbitration clause was procedurally and substantively unconscionable.  Numerous grounds are discussed, but we focus on the one area which is relevant for our blog.

            The problematic clause basically stated that the losing party in an arbitration would (“shall”) pay to the prevailing all costs plus a reasonable sum for attorney’s fees.  The defect was that this mandatory clause also encompassed one-way fee-shifting provisions in the Labor Code which would not allow exposure to a losing employee even though no such exposure could be faced in a civil forum.  Neither the lower nor appellate courts found this substantively tolerable because awarding mandatory fees to a prevailing employer in an action concerning overtime wages does not conform to the employee’s statutory rights.  Employer argued that the arbitrator obviously knew how to apply Labor Code fee shifting, but the appellate court was not impressed given the mandatory nature of the clause.  (Cf. Serpa v. California Surety Investigations, Inc., 215 Cal.App.4^th 695, 709-710 (2013).)  Employer then fell back on the argument that JAMS Employment Arbitration Rule 24(g) permits arbitrators to award fees if “allowed by applicable law,” but this generally worded rule does not supplant the specifically-worded arbitration fees clause to the contrary.  (Rebolledo v. Tilly’s, Inc., 228 Cal.App.4^th 900, 920 (2014).)  Given that there were other infirmities in the arbitration clause, the offending sections could not be severed.

            This case certainly gives drafting tips to employment attorneys wanting to enforce arbitration clauses; at the least, there needs to be language qualifying the arbitration provision to say the losing party need only pay costs and attorney’s fees employees would have been liable for in a civil forum.  (See Slip Op., p. 14.)  Presiding Justice O’Leary authored the 3-0 opinion.