Latest Circuit City arbitration decision from Nint…

Latest Circuit City arbitration decision from Ninth Circuit appears to be virtual death knell for mandatory arbitration of statutory employment claims in California

Ironically, Circuit City, whose efforts to expand the arbitration of statutory employment claims led to the US Supreme Court’s pro-arbitration decision in Circuit City Stores Inc. v. Adams, has now created extremely anti-arbitration precedent in the Ninth Circuit.

In Ingle v. Circuit City Stores, Inc. (9th Cir. 05/13/03), applying California law of unconscionability, the Ninth Circuit found the Circuit City arbitration agreement procedurally unconscionable because of “stark inequality of bargaining power” between employer and employee, and lack of meaningful opportunity to negotiate or opt out.

Agreement was also held substantively unconscionable because of several provisions that were one-sided in favor of employer, including scope of matters subject to arbitration, which did not include claims by employer against employee. Court concluded that agreement to arbitrate between employer and employee raises presumption of substantive unconscionability that is rebuttable only with evidence effect of agreement to arbitrate is truly bilateral.

While such arbitration agreements provide some benefits to employers, they are no panacea for employment law exposure. For one thing, as the Circuit City experience in numerous cases indicates, they present a substantial risk of additional litigation expense in connection with determining their validity and applicability. Having to give employees a meaningful opportunity to negotiate or opt out of the agreement and to include arbitration of employer claims against employees certainly further renders such agreements less appealing to employers.

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