The Divergent Outcomes Are Explained By The Peculiar Facts (Of Course)
Employer Kroger Co., parent of Ralphs, which had loaded an arbitration policy with one-sided provisions favoring the employer, moved to compel arbitration of an employment discrimination action. Unpersuaded that the arbitration policy really existed when the employee read and signed the employment application, the trial court denied Kroger’s motion.
In what could only be described as an ironic twist, the Court of Appeal accepted the trial judge’s finding that the stand-alone four-page arbitration policy may not have been part of the employment agreement, and concluded that here, that helped the employer -- and possibly saved Kroger from having to defend an unconscionable arbitration policy.
Here, the employment application itself contained a broad agreement to arbitrate employment-related disputes, separate and apart from the arbitration policy document. The failure to incorporate the additional arbitration policy simply meant that the relationship between the parties would be governed by the California Arbitration Act, requiring an arbitrator to be chosen pursuant to the provisions of the CAA.
Also, the employer’s failure to incorporate the arbitration policy document very possibly stopped the Court of Appeal from torpedoing that policy, because the arbitration policy presented serious lopsidedness issues. Under the terms of the arbitration policy, arbitrators from the AAA and JAMS were not permitted to administer the arbitration – making it more likely, in the view of the trial judge, that Kroger would be able to hand-pick an individual arbitrator dependent on Kroger’s patronage. The trial judge also found that a fee provision requiring plaintiff to pay 50% up front for the arbitration was unconscionable under Armendariz. Also, the arbitrator was only empowered to resolve a fee dispute if there was on-point US Supreme Court authority .
Fortunately (at least for the employer), because Kroger was unable to establish the contents of the arbitration policy were effective, the arbitration was controlled by California statutory and case law. Therefore, plaintiff’s arguments “that Kroger’s Arbitration Policy is procedurally and substantively unconscionable are meritless.”
2. Carter v. Fannie Mae, G049112 (4/3 Aug. 26, 2014) (Bedsworth, Fybel, Thompson) (unpublished).
Carter sued her former employer, Fannie Mae, for whistleblower retaliation. Fannie Mae moved, unsuccessfully, to compel arbitration, and appealed. The Court of Appeal explains that Carter did have an implied-in-fact agreement to arbitrate, but that the agreement is one-sided, and therefore substantively unconscionable. Specifically, “the contract cannot be enforced because it exempts the kinds of claims that Fannie Mae is likely to bring against employees, such as trade secret claims.”
The Court of Appeal refused to sever the unconscionably one-sided provisions: “We would have to rewrite the arbitration clause – which we cannot do – or somehow choose ‘what to leave in, what to leave out’ [quoting ‘Against the Wind,’ Bob Seger, 1980] which is also beyond our mandate.”
Comment: Note that Cruise v. Kroger, supra, didn’t address the need to sever, presumably because Kroger failed to establish that the provisions in its four-page arbitration policy, lopsided or otherwise, were ever part of the arbitration agreement.