Court of Appeal Finds Arbitration Agreement Presented as a Stand-alone Document was Not Unconscionable

The Second District Court of Appeal issued an opinion in Rocha v. U-Haul Co. of California, et al. (Cal. Ct. App., Feb. 2, 2023, No. B322599) 2023 WL 1462594, addressing questions of procedural and substantive unconscionability in mandatory employment arbitration agreements.

In 2003, U-Haul implemented an employment dispute resolution policy, which required all employees sign an arbitration agreement as a condition of employment. Upon hire by U-Haul, Plaintiff brothers Thomas and Jimmy Rocha signed a one-page document entitled “U-Haul Employee Agreement to Arbitrate.” U-Haul revised the policy in 2007 and 2013, requiring employees to sign updated arbitration agreements as a term of continued employment. The 2013 iteration of the agreement was the focus of the appeal.

Plaintiffs filed administrative complaints with the federal Equal Employment Opportunity Commission alleging that their manager at U-Haul had harassed and discriminated against them. They were terminated several weeks later, leading to Plaintiffs filing a civil complaint for retaliation, discrimination, and harassment based on race/color/national origin, amongst other causes of action. Plaintiffs filed an amended first complaint, which included a cause of action for declaratory relief, seeking a court order finding U-Haul’s arbitration agreement unenforceable.

After denying Plaintiffs’ request for leave to amend the complaint a second time, the trial court granted U-Haul’s motion to compel arbitration. The trial court found that the arbitration agreement was procedurally unconscionable but not substantively unconscionable, and was therefore valid. It then entered a judgment affirming an arbitration award that resolved the employment dispute in U-Haul’s favor on all causes of action. Plaintiffs appealed, arguing that the arbitration agreement they signed with U-Haul was unconscionable and thus unenforceable.

The Second District Court of Appeal found that the arbitration agreement created only limited procedural unconscionability. The agreement was a stand-alone document, “not buried in a lengthy employment agreement” and used conspicuous capital letters, as well as clearly disclosing that U-Haul required the employee to sign the agreement as a term of continued employment.

Examining the question of substantive unconscionability, the Court of Appeal found that the arbitration agreement did not deny Plaintiffs a forum in which to bring claims related to their employment at U-Haul against U-Haul employees, because claims are arbitrable under the agreement. Plaintiffs’ argument that the agreement was unconscionable because they were required to pay arbitration fees that they “would not otherwise bear in court” similarly fell flat because U-Haul reimbursed their AAA filing fee. The Court of Appeal further held that Plaintiff’s contention that the agreement denied them the right to appeal from an arbitration award was an inaccurate characterization. The agreement’s reference to the decision of the arbitrator being “final and binding” was not inconsistent with the right to appeal. The agreement also did not prevent Plaintiffs from filing a complaint or claim with an administrative agency that would prosecute a claim on their behalf, contrary to their arguments.

Accordingly, the Court of Appeal found that the trial court properly compelled the parties’ dispute to arbitration, and the judgment confirming the award resulting from that arbitration was also proper. This decision is a reminder to employers to review existing arbitration agreements to ensure compliance.

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February 8, 2023