24 Cal.4th 83, 114 (2000)
Mary Armendariz and Dolores Olague-Rodgers were hired by Foundation Health Psychcare Services, Inc. in July and August of 1995 for positions in the Provider Relations Group and were later promoted to supervisory roles with annual salaries of $38,000.1 As a condition of their employment, the employees signed application forms and separate arbitration agreements that required binding arbitration of any dispute arising from termination of employment.2 The arbitration clause provided that the employees' exclusive remedies would be limited to back wages from the date of discharge until the arbitration award and expressly excluded other remedies such as reinstatement and injunctive relief.3
On June 20, 1996, the employees were informed that their positions were being eliminated and that they were terminated.4 During their employment, they alleged that supervisors and coworkers engaged in sexually based harassment and discrimination, and they claimed the termination occurred because of their perceived or actual sexual orientation.5 The employees filed a complaint against the employer and its parent company alleging a cause of action for violation of the FEHA as well as tort and contract claims for wrongful termination, seeking general damages, punitive damages, injunctive relief, and attorney fees and costs.6
The employer filed a motion to compel arbitration under Code of Civil Procedure section 1281.2, supported by declarations.7 The trial court denied the motion, concluding that the arbitration agreement was an adhesion contract containing provisions so one-sided as to shock the conscience, including the requirement that only employees arbitrate claims and the limitation of damages to backpay.8 The Court of Appeal reversed the trial court's order, holding that the damages provision was unconscionable but that the remainder of the agreement should be enforced after severance.9
The Supreme Court granted review of the case.10
Whether claims under the California Fair Employment and Housing Act are arbitrable?11
Claims under the FEHA are arbitrable if the arbitration agreement meets minimum requirements allowing the employee to effectively vindicate statutory rights in the arbitral forum.12 Nothing in the FEHA or its legislative history prohibits arbitration.13 The statute does not inherently conflict with the arbitral forum.14
Yes. The established facts show that Armendariz and Olague-Rodgers filed a complaint alleging violation of the FEHA along with tort and contract claims for wrongful termination after their June 20, 1996 terminations.15 The court determined that such claims are arbitrable provided the agreement satisfies the requirements of neutral arbitrators, adequate discovery, written award, full remedies, and reasonable costs.16 The FEHA does not prohibit arbitration.17
Arbitration can serve as an adequate forum for vindicating those rights when the agreement meets the Cole standards.18
Claims under the FEHA are arbitrable when the arbitration agreement meets the minimum requirements.19
Related opinions on this issue
Werdegar concurred in the judgment.20 She agreed that claims under the FEHA are arbitrable.21 She also agreed that the arbitration agreements in this case are unconscionable and unenforceable.22
Werdegar wrote separately to express disagreement with the majority's conclusion that an arbitration agreement must provide for a written award that permits limited judicial review.23 She argued that this requirement goes beyond what is necessary to ensure employees can vindicate statutory rights.24 The requirement is not compelled by Gilmer or by California law.25
As long as the arbitral process is fair and the employee is not required to bear unreasonable costs, the agreement should be enforceable.26 Werdegar would hold the agreements unenforceable solely because of their lack of mutuality and their failure to provide for adequate discovery and allocation of costs.27
Whether an arbitration agreement must meet minimum requirements of neutral arbitrators, adequate discovery, a written award, full remedies, and reasonable costs to be enforceable for FEHA claims?28
An arbitration agreement covering unwaivable FEHA claims must provide for neutral arbitrators.29 It must provide for more than minimal discovery.30 It must require a written award permitting limited judicial review.31 It must provide all remedies available in court.32 It must not require the employee to pay unreasonable costs or fees.33 These elements ensure the employee can effectively vindicate statutory rights without forfeiting substantive protections.34
Yes. The established facts show that the arbitration agreements signed by Armendariz and Olague-Rodgers as a condition of employment in 1995 incorporated AAA rules without specifying discovery or cost allocation and limited remedies to back wages only.35 The court held that these minimum requirements derived from Gilmer and Cole must be satisfied for FEHA claims.36 The agreements here failed to guarantee adequate discovery, written findings, full remedies, or reasonable costs.37 This rendered them unenforceable.38
An arbitration agreement must meet those minimum requirements to be enforceable for FEHA claims.39
Whether the arbitration agreements are unconscionable because they lack mutuality by requiring arbitration only of employee claims?40
An arbitration agreement imposed as a condition of employment is unconscionable when it lacks a modicum of bilaterality.41 It requires the employee but not the employer to arbitrate claims arising from the same employment relationship.42 Such one-sidedness without reasonable justification based on business realities imposes arbitration on the weaker party while allowing the stronger party to retain the advantages of litigation.43
Yes. The established facts show that the arbitration agreements required Armendariz and Olague-Rodgers to submit all termination disputes to binding arbitration.44 The agreements did not require the employer to arbitrate any claims it might have against them.45 The agreements were adhesion contracts with no opportunity to negotiate.46 The court concluded that this lack of mutuality rendered the agreements substantively unconscionable under California law.47 The employer with superior bargaining power imposed arbitration only on employee claims without justification.48
The arbitration agreements are unconscionable because they lack mutuality.49
Whether the damages limitation in the arbitration agreements is contrary to public policy?50
A provision in an arbitration agreement that limits an employee's remedies for violation of FEHA or contract claims to back wages only is contrary to public policy and unlawful.51 It excludes reinstatement, injunctive relief, punitive damages, and attorney fees.52 FEHA rights are unwaivable.53 An arbitration agreement cannot serve as a vehicle for waiving statutory remedies.54
Yes. The established facts show that the arbitration agreements signed by Armendariz and Olague-Rodgers expressly limited exclusive remedies to wages from the date of discharge until the arbitration award.55 The agreements stated that no other remedy at law or equity would be available.56 The court held that this damages limitation was contrary to public policy.57 It prevented full vindication of FEHA rights and ordinary contract damages such as front pay.58
The damages limitation in the arbitration agreements is contrary to public policy.59
Whether the arbitration agreements fail to provide for adequate discovery and allocation of arbitration costs?60
An arbitration agreement covering FEHA claims must provide for adequate discovery.61 It must not require the employee to bear any type of expense unique to arbitration that would not be incurred in court.62 The risk of substantial forum costs chills the exercise of statutory rights.63 The employer as the imposing party must bear those costs to ensure an accessible forum.64
Yes. The established facts show that the arbitration agreements signed by Armendariz and Olague-Rodgers incorporated AAA rules without specifying discovery procedures or cost allocation.65 The agreements were governed by Code of Civil Procedure section 1284.2 requiring pro rata sharing of arbitrator fees.66 The court concluded that the agreements failed to guarantee adequate discovery.67 They improperly risked imposing unreasonable costs on the employees.68 This violated the requirement that the employer bear arbitration-specific expenses.69
The arbitration agreements fail to provide for adequate discovery and allocation of arbitration costs.70
Related opinions on this issue
Joined by Chin
Brown concurred in the judgment.71 She disagreed with the majority's bright-line rule that the employer must bear all costs unique to arbitration.72 Brown argued that the possible imposition of arbitration forum costs does not automatically undermine statutory rights.73
Each case presents unique circumstances.74 Not all arbitrations are costly.75 Not all employees are unable to afford the unique costs of arbitration.76
Apportionment should be left to the arbitrator.77 The arbitrator should consider the magnitude of the costs unique to arbitration, the ability of the employee to pay a share of these costs, and the overall expense of the arbitration as compared to a court proceeding.78 Judicial review should be available afterward rather than resolved preemptively by the court.79
This approach accounts for the particular circumstances of each case without sacrificing the employee's statutory rights.80
Whether unconscionable or unlawful provisions in the arbitration agreements render the entire agreement unenforceable or are severable?81
When an arbitration agreement contains multiple unconscionable or unlawful provisions that indicate a systematic effort to impose an inferior forum, the entire agreement is unenforceable rather than severable.82 The agreement is permeated by unconscionability.83 Civil Code section 1670.5 does not authorize reformation by augmentation.84
Yes. The established facts show that the arbitration agreements signed by Armendariz and Olague-Rodgers contained both an unlawful damages limitation and an unconscionably unilateral arbitration clause requiring only employees to arbitrate.85 These multiple defects indicated a systematic effort to impose an inferior forum, rendering the entire agreement permeated by unconscionability and unenforceable. The lack of mutuality could not be cured by severance without improperly augmenting the contract, as Civil Code section 1670.5 does not authorize reformation by augmentation.
Unconscionable or unlawful provisions render the entire agreement unenforceable.86