Jacquelin Davis v. O'Melveny & Myers, a California Limited Liability Corporation

Under the FAA, courts generally enforce arbitration agreements subject to ordinary state-law contract defenses. Buckeye Check Cashing and the Ninth Circuit's en banc decision in Nagrampa distinguish between attacks on an entire contract, which ordinarily go to the arbitrator, and attacks directed specifically at an arbitration clause or agreement, which a court must resolve.

Davis attacked the DRP's arbitration provisions as unconscionable. The arbitration agreement was only one part of the terms governing her employment, and invalidating or severing it would not affect the remaining conditions of employment. The court therefore had authority to decide unconscionability before compelling arbitration.

California unconscionability doctrine requires both procedural and substantive unconscionability, assessed on a sliding scale. Procedural unconscionability focuses on oppression and surprise, especially whether a contract is adhesive and imposed without a meaningful chance to negotiate or opt out.

The DRP was not concealed: O'Melveny distributed it openly, highlighted that it would bind continuing employees, and made personnel available to answer questions. Those facts reduced surprise, but they did not give employees a meaningful choice about the arbitration term itself.

Davis could keep her job only by accepting the DRP; her alternative was to leave O'Melveny altogether. She had no option to reject arbitration while preserving her employment, and there was no indication that an employee such as Davis could negotiate the terms.

The three-month notice period did not eliminate oppression. Ninth Circuit and California authority reject the proposition that an employee's theoretical ability to seek other work, or additional time to decide whether to quit, transforms a mandatory employment arbitration agreement into a voluntary one. O'Melveny's superior bargaining power and the take-it-or-leave-it structure established procedural unconscionability.

Although characterized as a notice requirement, the provision required an employee to give written notice and demand mediation within one year or lose the claim forever. Because mediation was a mandatory step before arbitration, the clause effectively required the entire claim to be initiated within one year after it was known or should have been known.

Ninth Circuit precedent had held that strict one-year limitations periods for mandatory arbitration of employment-related statutory claims are substantively unconscionable. The formal reciprocity of the restriction did not cure the defect because the claims realistically affected were claims employees would bring against their employer.

The provision also deprived employees of the benefit of continuing-violation theories, under which a worker may obtain relief for a continuing unlawful practice that began outside the ordinary limitations period. It therefore insulated O'Melveny from statutory liability while restricting remedies that California and federal law otherwise make available to employees.

Soltani, which approved a six-month filing rule tied to an employee's departure from work, did not control. That provision allowed an employee to pursue an older claim after leaving employment and did not similarly cut off continuing-violation relief.

The clause required confidentiality not only for arbitration materials and awards, but also for the existence of a controversy and the fact that mediation or arbitration was occurring. It prohibited disclosure to anyone not directly involved in the proceeding.

Under Ting, broad secrecy provisions can create an unfair repeat-player advantage. An employer that repeatedly arbitrates employment disputes can accumulate knowledge about prior claims and outcomes, while employees and their lawyers are prevented from learning about comparable claims, arbitral rulings, or patterns of misconduct.

As written, the clause could prevent an employee from speaking with current or former coworkers to investigate a claim, locate evidence, or build a case. It could also impede later claimants from using information concerning prior disputes and could chill disclosures concerning working conditions protected by California law.

O'Melveny's assurances that it would allow needed investigation or discovery could not save the provision. The court evaluated the language actually imposed, not an employer's post-litigation offer to apply it more narrowly. Confidentiality is not inherently invalid, but this clause was too broad.

California law permits a party with superior bargaining power to reserve a judicial remedy when a legitimate commercial need or business reality justifies the asymmetry. O'Melveny had a serious interest in promptly protecting attorney-client privileged material, work product, and client confidences, particularly because law-firm employees may possess sensitive information.

The court acknowledged that a narrowly tailored exception for immediate judicial injunctive relief to protect attorney-client privilege or work product might be justified. Such protection serves important public interests as well as the firm's interests, and provisional judicial remedies may sometimes be necessary to prevent irreparable disclosure.

But the DRP did more. It allowed O'Melveny to seek any equitable relief in court for disclosure of any confidential information. That broad wording went beyond the asserted need to protect privileged client information and granted the firm a unilateral judicial forum for a wide range of claims.

California precedent rejects one-sided court-access provisions based merely on an employer's desire to protect proprietary or confidential information. Because the exception extended far beyond any established business necessity, it was substantively unconscionable.

Arbitration may substitute an arbitral forum for a judicial forum, but it may not require an employee to waive substantive statutory rights and remedies. Employment protections under the FLSA and California labor statutes serve public as well as private interests.

California law treats claims for public injunctive relief under statutes such as the unfair competition law as incompatible with mandatory arbitration. Davis's complaint included claims seeking such relief, so the DRP could not require arbitration to the extent it foreclosed those judicial claims.

The DRP also prohibited employees from initiating administrative actions, except for discrimination charges filed with the EEOC, the California Department of Fair Employment and Housing, and similar agencies. The exception for those agencies reflected the settled rule that an individual cannot contract away the right to file an agency charge that helps the government vindicate public rights.

The same public-policy rationale applies to complaints made to the Department of Labor and California Labor Commissioner concerning wage-and-hour violations. FLSA enforcement depends substantially on workers being free to report violations. By prohibiting employees from initiating such administrative complaints, the DRP undermined that enforcement scheme and was void.

California Civil Code section 1670.5 permits a court in an appropriate case to sever an unconscionable clause and enforce the remainder. The central inquiry is whether the offensive terms are collateral to the agreement's principal purpose or whether the agreement is permeated by unconscionability.

Although much of the DRP was facially mutual, it contained procedural unconscionability plus four serious substantive defects: the one-year limitations provision, the broad confidentiality clause, the overbroad judicial-relief exception favoring O'Melveny, and the unlawful restriction on administrative actions.

Removing or narrowing all of those provisions would not be a simple excision of isolated terms. It would require the court to redesign important features of the parties' dispute-resolution system, something a court may not do under the guise of severance.

The multiple defects showed a systematic effort to impose arbitration as an inferior forum that favored the employer rather than as a neutral alternative to litigation. The entire DRP was therefore unenforceable, requiring reversal of the order compelling arbitration.