9th Circuit Strikes O'Melveny Arbitration Agreement

The Ninth Circuit yesterday refused enforcement of an arbitration agreement that the law firm of O'Melveny & Myers drafted for its own employees.  The court found the arbitration agreement procedurally unconscionable because it was presented to employees on a take-it-or-leave-it basis.  The court rejected O'Melveny's argument that giving employees three months notice made the agreement less unconscionable.

The court also found the arbitration agreement substantively unconscionable.  First, the agreement contained a one-year statute of limitations, which is shorter than the limitations period on some statutory employment actions and would bar cases brought on a "continuing violations" theory.  Second, an extremely broad confidentiality clause would "handicap if not stifle an employee's ability to investigate and engage in discovery."  Third, the arbitration agreement, while requiring employees to arbitrate all their claims against O'Melveny, permitted O'Melveny to litigate many of tis claims against employees, including claims involving "the disclosure of . . . confidential information."  Fourth, the arbitration agreement forbade employees from filing administrative charges with the Department of Labor or the California Labor Commissioner.

The court rejected O'Melveny's request to sever the offending clauses, and instead struck the arbitration agreement in its entirety.

The case is Davis v. O'Melveny & Myers, No. 04-56039 (9th Cir. May 14, 2007).  Hat tip to Howard Bashman at How Appealing, and to Paul for flagging this for me.

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