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Law firm arbitration agreement is unconscionable
May 27, 2007 by Ross Runkel at LawMemo

An arbitration agreement between the O’Melveny & Myers law firm and former employee Jacquelin Davis was unconscionable according to Davis v. O’Melveny & Myers (9th Cir 05/14/2007).

Davis sued claiming violation of the federal Fair Labor Standards Act (FLSA) and various other state and federal labor statutes.

O’Melveny & Myers wanted the case sent to arbitration because Davis had signed an agreement to arbitrate such disputes.

The 9th Circuit said she could stay in court because the agreement could not be enforced. Reason: unconscionable agreement under California law.

To be unconscionable, an agreement must be both procedurally and substantively unconscionable. According to the court:

• The agreement was procedurally unconscionable because
1. The agreement was drafted by a sophisticated employer.
2. It was a "take it or leave it" situation. There was no undue pressure, no concealment, no fine print, no surprise. The employee had three months to consider whether to sign. However, the employee had to either agree or go work somewhere else.
• The agreement was substantively unconscionable ("unduly harsh or oppressive") because
1. Notice of a claim had to filed within one year of when it became “known to the employee or with reasonable effort ... should have been known to him or her.”
2. The confidentiality clause unconscionably favors O’Melveny. The clause precludes even mention to anyone “not directly involved in the mediation or arbitration” of “the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration” or even “the existence of a controversy and the fact that there is a mediation or an arbitration proceeding.”
3. The agreement contained a "non-mutual provision" exempting O’Melveny from arbitration for “claims by the Firm for injunctive and/or other equitable relief for violations of the attorney-client privilege or work product doctrine or the disclosure of other confidential information.”

In addition, the court held that it was a violation of public policy to include the following:

neither you nor the Firm will initiate or pursue any lawsuit or administrative action (other than filing an administrative charge of discrimination with the Equal Employment Opportunity Commission, the California Department of Fair Employment and Housing, the New York Human Rights Commission or any similar fair employment practices agency) in any way related to or arising from any Claim covered by this Program. (Emphasis added.)

My view: California is tough on employers when it comes to unconscionability. The 9th Circuit (applying California law) is sometimes tougher. Employers should pay attention; otherwise they spend a lot of time and money finding out that their arbitration agreements are worthless.

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