Arbitration Agreements: Delegation Clauses

Tiri v. Lucky Chances, Inc., (Fourth District, May 15, 2014) 2014 WL 1961845, — Cal.Rptr.3d. —-, 14 Cal.Daily Op. Serv. 5380, 2014 Daily Journal D.A.R. 6103

A woman who was fired from her job as a cook at a card-club casino while on medical leave after undergoing heart surgery, filed an action against her employer for wrongful discharge. The employer filed a petition to compel arbitration based upon an arbitration agreement the woman had been asked to sign three years after she had been hired, which contained a provision delegating questions about the enforceability of the agreement to the arbitrator instead of a court. The plaintiff opposed the petition, contending that the arbitration agreement was unconscionable and that its unconscionability was an issue properly resolved by the trial court.

The trial court denied the petition, finding that the arbitration agreement was both substantively and procedurally unconscionable and therefore unenforceable because the employer had presented the agreement to the plaintiff on a ‘take it or leave it basis’ and the employer had failed to attach AAA employment dispute resolution rules to the arbitration agreement.

The court of appeal reversed, holding that although the trial court’s implied finding that the delegation clause was procedurally unconscionable was correct, its implied finding that the delegation clause was substantively unconscionable was incorrect. The court held that despite the fact the clause was part of a contract of adhesion, it was nevertheless valid, and the question whether the arbitration agreement as a whole or any of its other severable provisions was unconscionable, should be left to the arbitrator:

Although we conclude that the delegation clause is a contract of adhesion and procedurally unconscionable, we conclude that it is nonetheless valid because it is not substantively unconscionable. The delegation clause is not overly harsh, and does not sanction one-sided results. … The delegation clause here does not lack mutuality because Tiri and Lucky Chances are bound by it equally….

[T]he delegation clause here does not lack mutuality because Tiri and Lucky Chances are bound by it equally. The agreement requires arbitration for “any and all differences and/or legal disputes” (whether by or against the employee or employer). This mutuality is nearly unqualified, and it is far more than the “ ‘modicum of bilaterality’ ” required by our state Supreme Court in employment arbitration agreements. …We can find nothing in the delegation clause upon which to conclude that it lacks mutuality or is otherwise unreasonably favorable to Lucky Chances….

In Murphy and Ontiveros, two substantive unconscionability concerns were identified with delegation clauses in employment arbitration contracts of adhesion. …[T]he concern was that if arbitrators get to decide enforcement issues, employees will be more caught up in arbitration processes than employers because they are far more likely to bring enforcement challenges. The second was that allowing arbitrators to decide enforceability issues is unfair because arbitrators could be invested in the outcome … But these concerns, as reasonable as they are, are virtually always present with delegation clauses in employment arbitration agreements. To conclude that they signify substantive unconscionability would be tantamount to concluding that delegation clauses in employment arbitration agreements are categorically unenforceable. Such a conclusion would conflict with Rent–A–Center’s indication that delegation clauses in employment agreements are enforceable so long as they are clear and unmistakable. (Rent–A–Center, supra, 561 U.S. at p. 72, 130 S.Ct. 2772 … We conclude that the inescapable import of Rent–A–Center is that clear delegation clauses in employment arbitration agreements are substantively unconscionable only if they impose unfair or one-sided burdens that are different from the clauses’ inherent features and consequences. Here, Tiri has failed to demonstrate that the delegation clause imposes any such burdens.

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