California Continues to Prevent the Enforcement of Agreements to Arbitrate Employment Disputes

California Continues to Prevent the Enforcement of Agreements to Arbitrate Employment Disputes

On August 29, 2019, the California Supreme Court in a 6-1 decision in Oto, LLC v. Kho, refused to compel arbitration of an employee’s wage complaint that had been filed with the California Labor Commissioner. The Oto court found that “the oppressive circumstances presented” rendered the agreement to arbitrate “unconscionable,” and therefore unenforceable. After acknowledging that the U.S. Supreme Court has made clear that the Federal Arbitration Act preempts state laws that prohibit the arbitration of a particular type of claim, the Oto court based its decision on “contract defenses,” which it noted have been used by courts “to invalidate arbitration agreements without contravening the FAA or California law.”

To support its conclusion that the arbitration agreement was “procedurally unconscionable,” the Oto court referenced that the plaintiff had not been not given sufficient time to review the agreement before being pressured to sign it, his primary language was Chinese and the agreement was in English, the arbitration language appeared in small font, and it contained legalese, making it “nearly impossible to understand the contract’s meaning without legal training and access to the many statutes it references.” The Oto court also found the agreement “substantively unconscionable,” agreeing with the plaintiff that the arbitral process was “so inaccessible and unaffordable, considered as a whole, that it does not offer an effective means for resolving wage disputes.”

Whether an employer in California may require its employees to arbitrate various employment-related claims remains unresolved. The U.S. Supreme Court may be asked to review the California Supreme Court’s Oto decision. On September 5, 2019, the state Senate approved Assembly Bill 51, sending it on to the governor. AB 51 would bar employers in California from forcing workers to agree to arbitrate certain potential disputes.