Split Of Opinion In District Two Over Enforceability Of Delegation Clauses
Poker game of construction workers at canteen, Shasta Dam. Russell Lee, photographer. 1939. Library of Congress.
When Lourdes Tiri, a cook fired by Lucky Chances, a card-club casino and restaurant, sued her employer, the employer petitioned to compel arbitration. However, the trial court denied the petition on the basis that the arbitration agreement was unconscionable and therefore unenforceable. Employer appealed. Tiri v. Lucky Chances, Inc., A136675 (1st Dist. Div. 4 May 15, 2014) (Humes, Ruvolo, Reardon) (published).
The Court of Appeal now holds: “the trial court lacked the authority to rule on enforceability of the agreement because the parties’ delegation of this authority to the arbitrator was clear and is not revocable under state law.”
The delegation clause is not the same as the arbitration agreement. Thus, the delegation provision may be enforceable – as it was here – though the arbitration agreement itself could be unconscionable.
The delegation clause here provided: “The Arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or any part of this Agreement is void or voidable.”
For a delegation clause to be enforceable, (1) the language of the clause must be “clear and unmistakable”; and (2) the delegation must not be revocable under state contract defenses such as unconscionability.
Here, the Court of Appeal agreed that the delegation clause was procedurally unconscionable, as it was presented on a “take it or leave it” basis. However, it was not lacking in mutuality so as to be substantively unconscionable. Moreover, the language of the delegation clause was “clear and unmistakable.” Therefore, the delegation clause satisfied the requirements for enforceability.
The Court of Appeal notes that it has now created a split of opinion with two other decisions from the district, Ontiveros v. DHL Express (USA), Inc. 164 Cal.App.4th 494 (2008) and Murphy v. Check ’N Go of California, Inc.,156 Cal.App.4th 138 (2007), both of which declined to enforce delegation clauses in employment arbitration contracts of adhesion on unconscionability grounds.
So has Lourdes Tiri been dealt a bad hand by Lucky Chances? Now it’s up to the arbitrator to decide the merits of the employee’s claim, and whether the arbitration agreement itself is unconscionable.