ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, October 31, 2017

Arbitration clause declared unconscionable because of its one-sidedness and limited discovery

A recent case out of California, Diaz v. Hutchinson Aerospace & Industry, Inc., B271563, has a nice, organized unconscionability analysis that leads to finding an arbitration clause unenforceable. 

The case concerns an employment agreement signed by Diaz with his employer Hutchinson. The employment contract was indisputably an adhesion contract, because it was distributed pre-printed to employees with no opportunity to negotiate. That does carry some degree of procedural unconscionability but the court characterized it as minimal, since it was not accompanied by any other elements of surprise or sharp dealing. Given the low degree of procedural unconscionability, the court required a high degree of substantive unconscionability. 

Unfortunately for Hutchinson, that high degree of substantive unconscionability was met. First, the arbitration provision was one-sided: only claims against the employer were required to go to arbitration, not claims against the employee. Second, the arbitration provision limited discovery in such a way as to make it impossible for the employees to vindicate their rights. 

Because this high degree of substantive unconscionability combined with the procedural unconscionability rendered the arbitration clause unenforceable, the court was justified in finding the entire agreement "permeated by an unlawful purpose" and refusing to enforce it. 

http://lawprofessors.typepad.com/contractsprof_blog/2017/10/arbitration-clause-declared-unconscionable-because-of-its-one-sidedness-and-limited-discovery.html

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