Capili v. The Finish Line, Inc.
116 F.Supp.3d 1000 (2015)
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Rule of Law:
Under California law, a mandatory employment arbitration agreement is unenforceable if it is both procedurally unconscionable and so permeated with substantively unconscionable terms that its central purpose is tainted with illegality. An employer's offer to waive such provisions after a dispute has arisen does not cure the agreement's unenforceability.
Facts:
- Ritarose Capili applied for a sales associate position at a The Finish Line, Inc. ('Finish Line') store in Daly City, California.
- As a mandatory condition of having her application considered, Capili was required to agree to an arbitration provision.
- Upon being hired, Capili was again required to electronically agree to Finish Line's Employee Dispute Resolution Plan as a non-negotiable condition of her employment.
- The agreement contained a forum selection clause stipulating that all arbitration proceedings must take place in Indianapolis, Indiana.
- The agreement included a cost-sharing provision requiring the employee to equally share arbitration fees, with the employee's maximum contribution being the greater of $10,000 or 10% of the amount in controversy.
- The agreement exempted from arbitration the types of claims most likely to be brought by Finish Line (e.g., unfair competition, trade secrets), while requiring arbitration for claims typically brought by employees (e.g., discrimination, wage claims).
- Finish Line terminated Capili's employment after she requested a leave of absence related to her pregnancy and other health conditions.
Procedural Posture:
- Ritarose Capili filed a lawsuit alleging workplace discrimination against The Finish Line, Inc. in a California state court.
- The Finish Line, Inc. removed the action to the U.S. District Court for the Northern District of California.
- The Finish Line, Inc. filed a motion to compel binding arbitration, arguing that Capili's claims were subject to the Employee Dispute Resolution Plan she signed.
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Issue:
Under California law, is a mandatory employment arbitration agreement unenforceable as unconscionable when it is presented on a non-negotiable, take-it-or-leave-it basis and contains multiple one-sided provisions, including a distant forum selection clause, a prohibitive cost-sharing requirement, and non-mutual exemptions for claims most likely to be brought by the employer?
Opinions:
Majority - Haywood S. Gilliam, Jr.
Yes. Under California law, a mandatory employment arbitration agreement is unenforceable as unconscionable when it demonstrates both procedural and substantive unconscionability to a degree that the illegality permeates the entire agreement. The court found the agreement was procedurally unconscionable because it was a contract of adhesion, presented to Capili on a take-it-or-leave-it basis as a condition of employment, which created an inequality of bargaining power and an absence of meaningful choice. The court also found overwhelming evidence of substantive unconscionability from three key provisions: (1) the forum selection clause, which was unduly oppressive by requiring a California employee to arbitrate claims in Indiana; (2) the exemption of claims most likely to be brought by the employer, which lacked mutuality; and (3) the cost-sharing provision, which illegally required the employee to bear arbitration costs not present in litigation, in violation of the rule from Armendariz. Because these multiple defects indicated a 'systematic effort' to create an inferior forum for employees, the agreement was permeated with unconscionability and could not be saved by severing the clauses. The court rejected Finish Line's offer to waive the provisions, holding that such offers cannot resuscitate a legally defective contract and that allowing them would create a perverse incentive for employers to draft illegal agreements to chill claims.
Analysis:
This decision reinforces the application of California's robust unconscionability doctrine to mandatory employment arbitration agreements, as established in Armendariz. It demonstrates that courts will scrutinize the cumulative effect of multiple one-sided provisions, finding that numerous unfair terms can 'permeate' an agreement with illegality, justifying refusal to enforce the entire contract rather than severing the offending clauses. Most significantly, the ruling firmly rejects the strategy of an employer attempting to cure an unconscionable agreement by offering to waive the illegal terms after being challenged in court. This prevents employers from using unenforceable clauses to deter employees from bringing claims, knowing they can simply drop the provisions if litigation ensues.
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