Ruling sets new standard for striking down arbitration agreements

In a labor and employment decision that has something for both sides, the state Supreme Court on Monday reversed a 2nd District Court of Appeal decision striking down an arbitration agreement even though it agreed that three provisions were unconscionable.

Instead, the court remanded the case because it disagreed with the appellate court that one of the provisions -- concerning discovery -- was permissible even while opening the door for challenges to several other parts of Charter Communications Inc.'s arbitration agreement with employee Angelica Ramirez.

"As clarified here, the decision whether to sever unconscionable provisions and enforce the balance is a qualitative one, based on the totality of the circumstances," wrote Justice Carol A. Corrigan, an appointee of Gov. Arnold Schwarzenegger. "The court cannot refuse to enforce an agreement simply by finding that two or more collateral provisions are unconscionable as written and eschewing any further inquiry."

"Here, we clarify that no bright line rule requires a court to refuse enforcement if a contract has more than one unconscionable term," she added. "Likewise, a court is not required to sever or restrict an unconscionable term if an agreement has only a single such term." Ramirez v. Charter Communications Inc., 2024 DJDAR 6699 (Cal. S. Ct., filed March 28, 2022).

Fred W. Alvarez - a partner with Coblentz Patch Duffy & Bass LLP who represents The Employers Group, an organization of small companies that filed an amicus curiae brief - said the ruling allows his clients to prevail even if some provisions in its arbitration agreement with workers are struck down.

"If you can show the provision is collateral to the agreement, and it's severable, then you can enforce the arbitration agreement rather than toss the whole agreement," he said in a phone interview.

But Jamin S. Soderstrom, an attorney with Soderstrom Law PC who filed an amicus curiae brief and has pending federal class actions against Charter Communications in the Eastern District of California, said in a phone interview that the outcome "is better for us than for them."

"There is no hard and fast rule," he said, noting that some judges have struck down arbitration agreements if enough provisions were deemed unconscionable - which was employers' gripe. But Soderstrom said it could go the other way, allowing judges to strike down an arbitration agreement if just a single provision was unconscionable and not severable.

Eric A. Panitz, an attorney with Panitz Law Group APC who represents Ramirez in her lawsuit challenging the arbitration agreement, said in an email that he remains optimistic that the eventual ruling - even after further briefing on remand, will go in his client's favor.

In a footnote, Corrigan cited several additional provisions that Panitz could challenge once the case is sent back to the 2nd District.

"With at least three, and perhaps more unconscionable terms, it will become very difficult for Charter to argue that its arbitration agreement was not a systematic effort to impose arbitration on its employees, not simply as an alternative to litigation, but to secure a forum that works to the Charter's advantage," Panitz wrote.

Charter Communications, through a spokesperson, declined to comment. Kiran A. Seldon, senior counsel with Seyfarth Shaw LLP who represents the company, said during oral arguments that Charter has "a clear severability provision in our agreement."