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May 22, 2020

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California Supreme Court Rejects Workplace Arbitration Agreement

Continuing the trend of California decisions rejecting arbitration of workplace disputes, the California Supreme Court recently rejected an employer’s efforts to compel arbitration.

In OTO LLC v. Kho, the plaintiff was a service technician who filed a complaint with the Labor Commission after his employment ended in 2014. The defendant employer sought to compel arbitration, but its request was denied. In a 6-1 decision, the court found the arbitration agreement to be both procedurally and substantively unconscionable.

With regard to procedural unconscionablity, the court determined that the circumstances under which the plaintiff signed the agreement were coercive, and that the agreement itself was problematic. According to the court, it was written in “extremely small font,” densely worded, and “filled with statutory references and legal jargon.” The court described the agreement as a “paragon of prolixity,” agreeing with the court of appeal that the agreement challenged “the limits of legibility.” Ultimately the court agreed that “the agreement appears to have been drafted with an aim to thwart, rather than promote, understanding.”

With regard to substantive unconscionablity, the court focused on the fact that the arbitration agreement forced plaintiff to waive his right to the Berman process. The Berman process involves a speedy hearing, and no formal discovery; it is an administrative procedure “designed to provide a speedy, informal, and affordable method of resolving wage claims.” The court found that the arbitration program at issue traded the efficiencies and low costs of the Berman process for “access to a formal and highly structured arbitration process that closely resembled civil litigation if [the plaintiff] could figure out how to avail himself of its benefits and avoid its pitfalls.”

Arbitration remains a critical issue for employers, and California remains the epicenter of the developing jurisprudence. The court noted that its “cases have taken a different approach in evaluating the compelled arbitration of wage claims, as compared to the arbitration of other types of disputes.”

It remains to be seen whether OTO will make its way to the Supreme Court of the United States, as the California Supreme Court’s Sonic decision did. In the meantime, OTO is in some ways a lesson for employers about what not to do when implementing an arbitration program. For example, arbitration agreements written in plain language, in standard font size, are more likely to be enforced. And, at least for now in California, arbitration programs that provide some of the benefits of the Berman process are also more likely to be upheld.



About this Author

John Kuenstler Employment Attorney Barnes & Thornburg

John dedicates his practice exclusively to the representation of employers in labor and employment and business matters. He counsels and represents a diverse client base on a national and regional basis in virtually all aspects of labor and employment law.

John’s experience includes the defense of single- and multi-plaintiff, collective and class action litigation pertaining to wrongful discharge, discrimination, sexual harassment, retaliation, Title VII, ADA, ADEA, Section 1981, FMLA, FLSA, ERISA, USERRA, WARN and OSHA claims before federal and state courts and administrative...

Peter J. Wozniak Barnes Thornburg Chicago  Labor Employment

Pete Wozniak is a vigorous advocate who strives to help his clients navigate issues that can be fraught with challenges as painlessly and efficiently as possible. He is a candid and personable counselor, offering his clients direct advice by leveraging his deep experience performing a broad range of outcome critical functions for complex labor and employment matters.

Pete represents clients across a number of industries, including transportation and logistics, restaurants, retail, manufacturing, and temporary staffing. Handling a number of high profile matters, he identifies the appropriate tools and techniques to reach the optimal resolution for the client in the matter at hand, always cognizant of how the matter fits into the client’s overall operations.

Pete partners with his clients to understand the ins and outs of their businesses, and to help ease the impacts that litigation may have on their operations. His holistic approach allows him to advise clients regarding approaches and resolutions that would be most favorable for their overall business, now and in the future. While striving to help clients minimize the disruptive impact of lawsuits on their operations, Pete understands the monetary costs of litigation, including the potentially-prohibitive costs of electronic discovery. Using that understanding, he provides counsel and litigation strategy to deploy the most efficient resources possible.

Among other areas, Pete defends employers throughout the United States in a variety of complex employment discrimination class actions and single plaintiff litigation, wage and hour class and collective actions and single plaintiff litigation, and Equal Employment Opportunity Commission (EEOC) litigation. His experience spans the entire spectrum of litigation, including pretrial investigation, settlement negotiation, fact and expert discovery, trial, and post-trial appeals.

Because the law and our society are ever-evolving – particularly as social media outreach continues to accelerate and expand – Pete keeps up-to-date on legal and social trends and employment-related rules, regulations and decisions, so he can best counsel his clients when the inevitable changes may have an impact their business, whether inside or outside the courtroom.

Before practicing law, Pete was a sergeant in the U.S. Army Reserve, serving as a logistician.

Mark Wallin, Attorney, BT, Chicago, Labor Employment
Of Counsel

In order to provide the best counsel, Mark Wallin believes it is his role to understand his clients’ business needs so he can help them determine what resolution will provide the most benefit. His keen ability to understand his clients’ practical concerns allows him to advise on the best path to successfully resolve issues – whether through traditional litigation or negotiated resolution.

In the course of his practice, Mark has focused on providing the highest-level of service to his clients and building long-term relationships. Specifically, he defends employers in a wide range of...