SW Legal Educational Publishing

Remedy Limits in Employee Arbitration Clause is Contract of Adhesion
Description Arbitration requirement agreed to by employees who later sued for wrongful termination is held to be an unconscionable contract of adhesion as to its provision that severely limited the damages that could be requested, regardless of reason for termination.
Topic Alternate Dispute Resolution
Key Words Arbitration Clause, Unconscionable; Contract of Adhesion
C A S E   S U M M A R Y
Facts After two employees were fired, they sued their employer for wrongful termination, claiming they had been terminated because of their sexual orientation, a possible violation of California law. When hired, the employees had signed an arbitration clause that stated that their exclusive remedy for any employment-related dispute was arbitration and that the most they could receive from arbitration was back wages from date of dismissal to date of arbitration. Employees claimed the clause was an unconscionable contract of adhesion. Matter was appealed.
Decision The employees' claims should be arbitrated, but the arbitration clause was a contract of adhesion that cannot be enforced as to its limitations on remedies. There is a strong public policy in favor of arbitration, but fraud, duress, or unconscionability may invalidate arbitration agreements. As an earlier court noted, "Where a contract is adhesive, courts will not enforce a provision which limits the liabilities and duties of the stronger party...." The exclusive remedy provision here as to damages is too limiting given employees' rights under California law.
Citation Armendariz v. Foundation Health Psychcare Services, Inc.,, 80 Cal.Rptr.2d 255 (Ct. App., Calif., 1998)

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