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For the first time, the California Supreme Court hinted that it may curtail thepower employers have to require workers to sign mandatory arbitrationagreements as a condition of employment. In one of the most closely-watched employment cases before the court thisyear, several justices indicated Tuesday that they were prepared to toss outa First District Court of Appeal opinion on the grounds that the arbitrationagreement at issue was one-sided and therefore unconscionable. What was less clear Tuesday was whether a majority of the court wasprepared to follow the lead of the Ninth Circuit U.S. Court of Appeals andrule that arbitration agreements in employment contracts must be voluntary. Hearing arguments in Armendariz v. Foundation Health Psychcare Services Inc., S075942, Chief Justice Ronald George and JusticesKathryn Mickle Werdegar, Marvin Baxter and Joyce Kennard expressed concernthat California workers were being forced to sign lopsided agreements inorder to get jobs. In a broad line of questioning, the justices also pondered whethermandatory arbitration clauses were fair at all in the context of employment. “If this court were to uphold a contract of adhesion, wouldn’t everyemployer use it as a condition of employment?” Werdegar asked Foundationattorney William Gaus, a Pillsbury Madison & Sutro partner. Gaus said the arbitration agreement at issue was an enforceable contract,”nothing more, nothing less.” But many of the justices, including George, seemed to find problems withthat argument. “Why is an arbitration clause not unconscionable when it is one-sided?”George asked Gaus. “That would seem to be, at first blush, unconscionable.” Defending the contract, Gaus answered that employment contracts are oftenone-sided, because it is extremely rare for a company to bring a claimagainst a worker. Besides, he said, contract law does not require thatsigned agreements be balanced, and California law favors arbitration. But Werdegar, who suggested that a legislative preference for arbitrationcan’t trump constitutional safeguards, kept returning to the big picture ofmandatory arbitration. “It seems to me one thing leads to another. It’s a contract of adhesion anda gateway to employment,” Werdegar told Gaus in a raised voice. “You don’tsee the opportunity to have a job as different from choosing who your lenderis going to be?” Justice Kennard also took up the charge: “There is a distinction betweenstatutory claims that can be waived and statutory claims that cannot bewaived as a matter of public policy.” Those concerns from the bench were welcomed by Cliff Palefsky, who appearedas plaintiff’s amicus curiae on behalf of the CaliforniaEmployment Lawyers Association. Palefsky, a name partner at San Francisco’s McGuinn, Hillsman & Palefsky,argued that mandatory arbitration as a condition of employment is notsufficiently voluntary. He also argued that such contracts were not in linewith public policy. “The issue is whether you have a choice,” he said. “[And] not between yourjob and your rights.” The plaintiffs in Tuesday’s case, Marybeth Armendariz and DoloresOlague-Rodgers, say they had no choice when they signed an agreementrequiring them to bring workplace disputes to arbitration. When the two were fired from Foundation Health in 1996, they claimed it wasbecause they were heterosexual. But a provision in their employment contractsaid the women were only entitled to wages lost between the time of theirtermination and the date of an arbitration award. The women sued to have the contract invalidated and a Marin County SuperiorCourt Judge — finding the agreement so one-sided as to “shock theconscience” — threw it out. Foundation appealed and the First District Court of Appeal overturned theruling, ordering the women to settle the claim in arbitration. The appellate panel agreed that the contract contained illegal provisions,but instead of invalidating the contract in its entirety, the court insteadordered the bad parts removed. Employers’ use of mandatory ADR has been a hot issue in both state andfederal courts. So far, no court has gone as far as the Ninth Circuit didwith its 1998 decision in Duffield v. Robertson Stephens, 144F.3d 1182. In that case, Judge Stephen Reinhardt said Title VII claims couldbe handled in arbitration but only if the agreement was signed voluntarily. Employment lawyers say they expect the California Supreme Court touse Armendariz to deal with the controversial issue. OnTuesday the court — spending little time with questions about the FirstDistrict’s editing of Foundation’s agreement — seemed to be signaling itsintention to do just that. “What are the minimum standards that you feel should be required?” Georgeasked Glenn Clark, an attorney for the two women. Clark, of Miller, Clark, Calvert & Raimondi in Berkeley, answered that anyagreement must be voluntary, “[And] the agreement must not require employeesto pay costs exceeding what it would cost to go to court.”

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