Armendariz v. Foundation Health Psychcare Services, Inc.

Supreme Court of California · 2000 · Contracts

ContractsArbitrationUnconscionabilityEmployment ContractsFEHAmandatory employment arbitrationFEHA claimsunconscionability

Facts

The employer required employees, as a condition of employment, to sign an arbitration agreement covering claims that their termination was wrongful or violated employment conditions or rights. The agreement required binding arbitration of such employee claims and limited the employee's exclusive remedies to backpay through the date of the arbitration award, excluding any other legal or equitable relief. After the employees were terminated, they alleged sexual-orientation discrimination and harassment under FEHA and also asserted tort and contract wrongful termination claims. The employer moved to compel arbitration under the agreement.

Issue

May employees be compelled to arbitrate FEHA discrimination claims under a mandatory employment arbitration agreement, and if so, is this particular agreement enforceable given its remedial limitation, one-sided scope, and other alleged deficiencies? If parts of the agreement are unlawful or unconscionable, should they be severed or should the entire agreement be refused enforcement?

Rule

FEHA claims may be subject to mandatory employment arbitration if the arbitral forum allows employees to vindicate their unwaivable statutory rights. At minimum, such arbitration must provide a neutral arbitrator, more than minimal discovery sufficient to vindicate the claim, a written award allowing limited judicial review, all types of relief otherwise available in court, and no requirement that the employee bear arbitration-specific costs that would not be incurred in court. More generally, an adhesive employment arbitration agreement is unconscionable if it is substantively one-sided without reasonable justification, and if the agreement is permeated by unconscionability a court may refuse to enforce it rather than sever terms.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Patel applies for a job with Redwood Vista Care, a fictional clinic in Sacramento, California. As a condition of employment, she signs an agreement requiring arbitration of any disability-discrimination claim under California employment law, but the clause provides for a neutral arbitrator, sufficient discovery, a written award, all remedies available in court, and employer payment of arbitration-specific forum costs.

If Nina later sues in court for statutory discrimination, how should a California court most likely rule on the employer's petition to compel arbitration?

Explanation. The majority held that unwaivable statutory employment claims may be subject to mandatory arbitration if arbitration functions as an adequate substitute forum for vindicating those rights. At minimum, the process must provide a neutral arbitrator, adequate discovery, a written award permitting limited judicial review, all otherwise available relief, and no employee obligation to bear arbitration-specific costs. Because those protections are present here, the petition should be granted.