Mediation: Condition Precedent; Arbitration: Unconscionability: 4/3 DCA Reverses Denial Of Motion To Compel Arbitration Based On Employee’s Failure To Follow Dispute Resolution Hierarchy And Rejects Unconscionability Challenges

Employee Was Required To Have Informal Meeting With Employer First, Formal Mediation Next, And Then Arbitration, With Employer Paying Costs Of ADR Remedies.

            Justice Bedsworth, in his distinctively colorful writing style, reversed a denial of a motion to compel arbitration in line with an ADR agreement between employee and employer in Barati v. Ottno, Inc., Case No. G054960 (4^th Dist., Div. 3 June 25, 2018) (unpublished; Bedsworth, J., author, concurred in by O’Leary, P.J. and Thompson, J.). In the process, he discussed a tailored ADR agreement and four unconscionability challenges advanced by employee on appeal.

            The operative background was that employee and employer entered into a mediation and arbitration agreement which was pretty much a standalone and signed by employee—it was not just a handbook with an arbitration clause hidden in small print or at the back of the handbook. This agreement called for a three-tiered ADR process: first, all employment claims (including civil rights violations) had to be subject to an informal negotiation through a first meeting between employee and employer concerning a dispute; second, the case had to be referred to the nearest office of JAMS for a nonbinding conference before a retired judge or justice; and third, if those efforts were unsuccessful, an arbitration then could be requested by either party. The problem here was that employee balked at doing the first informal negotiation meeting and filed his own formal demand for arbitration with JAMS (complete with the filing fee, although griping that the employer should have paid it). Employer insisted on employee honoring the ADR scheme in the agreement, filing a motion to compel ADR compliance under the agreement. The trial judge denied the motion without explanation, triggering an appeal by employer resulting in a reversal.

            The 4/3 DCA panel deciding the appeal decided there was no waiver of arbitration by employer not paying the JAMS mediation fees (“the elephant-in-the-room issue in the case”) because employee failed to follow the ADR process set forth in the agreement, more specifically, failure to engage in the initial informal negotiation session with employer.

            The appellate court then discussed and rejected four unconscionability arguments.

            First, the “take it or leave it” nature of the agreement was not unconscionable simply because the signing of it was a condition of employment. (Serafin v. Balco Properties Ltd., LLC, 235 Cal.App.4^th 165, 179 (2015).)

            Second, although it was true that the JAMS arbitration rules were not attached to the agreement and is a minor factor indicating procedural unconscionability, the failure to attach the rules—by itself—is not dispositive given employee failed to show that there was anything unfair about the JAMS rules. (Peng v. First Republic Bank, 219 Cal.App.4^th 1462, 1472 (2013).)

            Third, employee argued that the first informal negotiation session allowed employer an unfair “free peek” at his case. However, the 4/3 DCA panel found this unpersuasive because there was nothing in the ADR process requiring employee to reveal anything about his case and, in fact, employer was likely going to have to explain why employee was terminated—a reverse “free peek” favoring employee. The ADR structure under the agreement was unlike Nyulassy v. Lockheed Martin Corp., 120 Cal.App.4^th 1267, 1282-1283 (2004), which required successive negotiations with higher-up supervisors (not the case here) and was unilateral (also not the case, because it was bilateral in nature). (See also Nguyen v. Applied Medical Resources Corp., 4 Cal.App.5^th 232, 254-255 (2016).)

            Fourth, employee argued that he had to pay for at least part of the mediation fees such that he was denied the benefit of filing with court and not bearing such expenses. Not so, said the appellate panel, because the agreement was silent on which side paid, meaning that the employer would bear the cost of both the mediation and arbitration. (Little v. Auto Stiegler, Inc., 29 Cal.4^th 1064, 1082 (2003).)

            So, this one got reversed with directions that the motion to compel be granted and ADR resolution proceed as described per the agreement between the parties. With respect to awarding appellate costs to any side just yet, the panel decided that the issue should be left to the discretion of the arbitrator depending on the eventual outcome of the arbitration (assuming that the first meeting or subsequent mediation did not resolve things).