Can’t enforce arbitration agreement when related contract is unconscionable

A California court recently handed down a major decision that should be on every employer’s radar. The case is a wake-up call about how arbitration agreements can backfire if they aren’t drafted—and used—fairly. The ruling precluded an employer’s attempt to avoid arbitration by requiring employees to simultaneously sign two contracts: one promoting arbitration of all disputes on its face, and a second agreement that carves out certain intellectual property claims from mandatory arbitration in favor of the employer accessing court remedies. At its core, the court’s opinion warns employers against dressing up unconscionable arrangements in procedural formalism. No matter how packaged, an agreement that functionally preserves an employer’s litigation rights for claims typically filed by the employer, while forcing employees into arbitration, will not be upheld.

Background: one hiring, two agreements

Healthcare staffing company Cross Country Staffing required new hires to sign two contracts at the start of employment: an arbitration agreement and a separate employment agreement.

The arbitration agreement appeared evenhanded, requiring both employer and employee to resolve any and all claims between them via binding arbitration, waiving class actions, and dividing costs in a manner generally consistent with prevailing law. But the employment agreement contained numerous pro-employer provisions that directly contradicted terms in the arbitration agreement. Specifically, the employment agreement: