Here is how an arbitration contract can be found procedurally and substantively unconscionable.


Court of Appeals of California, First District, Division Two.

Filed April 10, 2019.  (2019 DJDAR 3080)

Here, subcontracting Concepts CT, LLC (“SCI”); Jesus Fernando Gonzalez; and Pedro Luesch (Appellants”) appeal from the trial court’s order denying their petition to compel arbitration and stay proceedings, brought against Chafie Gabriel Pereira Moreira De Melo (“Respondent”) in this matter arising from Respondent’s administrative wage claim, filed with the California Labor Commissioner, against appellants challenge the trial court’s findings that the arbitration agreement between SCI and Respondent was (1) procedurally and substantively unconscionable, and (2) so permeated with unconscionability that severance of the unconscionable terms was not possible.

Respondent was hired by Express Messenger Systems, Inc., doing business as OnTrac and SCI in June 2014, at which time he signed SCI’s “Owner/Operator Agreement” (Agreement). The Agreement is five pages long, typed in small font, and made up of 27 numbered clauses, including the arbitration clause at issue here, which is the 26th clause in the agreement. The arbitration clause provides that if the parties are unable to negotiate and settle a dispute, then the dispute “within the jurisdictional maximum for small claims will be settled in the small claims court where the Owner/Operator resides. All other disputes, claims, questions, or differences beyond the jurisdictional maximum for small claims courts within the locality of the Owner/Operator’s residence shall be finally settled by arbitration in accordance with the Federal Arbitration Act.” The arbitration agreement prohibited Respondent to join or consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim as a representative member of a class or in a private attorney general capacity. The agreement stated that the arbitrators will have authority to award actual monetary damages only. No punitive or equitable relief is authorized.

All parties shall bear their own costs for arbitration and no attorney’s fees or other costs shall be granted to either party, a panel of 3 Arbitrators and the parties shall have the discretion to examine up to three (3) witnesses per party. Each deposition shall be limited to a maximum of two (2) hours. Any objections based on privilege and/or confidential information will be reserved for arbitration.

Evidence surrounding the hiring established that Respondent answered an ad and went to an OnTrac/SCI warehouse, where he was told he had to sign employment documents “on the spot” to get a job and be matched with a supervisor. Respondent needed a job and felt he had to sign the documents. Respondent’s native language is Portuguese, and he is not fluent enough in English to fully understand documents written in English. No one asked if he wanted the documents translated into Portuguese and no one explained the documents to him in detail in either English or Portuguese.

Respondent was not given time to carefully review the employment documents at the warehouse and no one told him he could have an attorney review the documents or that he could negotiate their terms before he signed them. Nor did anyone tell him about any rights he might be giving up by signing the documents. He did not know and was not told that New York law applied to the documents or that he would be forced to go to arbitration in case of an employment-related dispute. He did not know or understand the meaning or purpose of arbitration, the rules and procedures related to arbitration, that [he] would have to pay the cost of arbitration, or that [he] was giving up payments of attorneys’ fee[s] and penalties by going to arbitration. When he signed the employment documents, he was not given rules for the American Arbitration Association or any other arbitration association. In other words and effect, the employer said here’s the agreement, take it and be happy, live with it and eat or leave it and head on over to the bread line. These cumulative restrictions on Respondent’s rights caused the trial court to throw out the arbitration agreement on both procedurally and substantively unconscionable grounds.   On appeal, appellants challenge the trial court’s findings that the arbitration agreement between SCI and respondent was (1) procedurally and substantively unconscionable, and (2) permeated with unconscionability and that that severance of the unconscionable terms was impossible. The Court affirmed the trial court’s order.

The Appellants spent a lot of time challenging the right of Respondent to seek LC relief, arguing that he was an independent contractor and the rules relating to procedural and substantive unconscionability did not apply. However, this argument was shot down long ago in Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242 where it was specifically stated, “[T]hat plaintiffs are independent contractors and not employees makes no difference in this context. The contract by which they were to work for defendants contained a mandatory arbitration provision.” Id. at 1249.  The Court of Appeals affirmed the trial court’s findings that the agreement was both procedurally & substantively unconscious.

Also Armendariz v. Foundation Health Psychcare Services, Inc  (2000) 24 Cal.4th 83  provides excellent discussion of the law and both procedural and substantive unconscionability.   See

Filed Under: Class Action (Employment)Labor & Employment