On July 1, 2022, Pamela Cook filed a complaint against the University of Southern California (USC) alleging that she was subject to disparate treatment by USC based on her race. Cook also alleged that USC failed to accommodate a variety of health-related time-off requests and that she was subject to retaliatory harassment when she reported her concerns. Cook alleged that due to this conduct, she was constructively discharged from her employment.
On October 24, 2022, USC filed a motion to compel all of Cook’s claims to arbitration. USC said that Cook’s employment offer was contingent upon executing an employment and arbitration agreement. Cook electronically signed the agreement on May 7, 2021. USC argued that all of Cook’s claims fell within the scope of the arbitration agreement, which USC said was a mutual arbitration agreement and afforded Cook all of the same rights and remedies that would have been available to her in court.
Cook disagreed. She argued that the agreement was procedurally and substantively unconscionable. Unconscionable terms in an arbitration agreement are not enforceable. Procedural unconscionability occurs when there is oppression or surprise due to the unequal bargaining power between the parties. Substantive unconscionability occurs when there are overly harsh or one-sided results.
Cook argued that the agreement was procedurally unconscionable because she was forced to sign it as a condition of her employment. She argued the agreement was substantively unconscionable because it was for an indefinite scope and covered her claims regardless of whether they related to her employment with USC; the agreement also survived the termination of the employment relationship for an indefinite period.
The trial court denied USC’s motion to compel arbitration. The trial court found the agreement was, to a small degree, procedurally unconscionable because of the non-negotiable nature of the agreement as a condition of Cook’s employment. The trial court also found the agreement was substantively unconscionable because it was indefinite in scope and duration. The agreement specifically provided that it would survive Cook’s termination and could only be revoked in a writing signed by Cook and the president of USC. It applied to all claims that Cook brought, regardless of whether they arose from her employment. For example, if Cook was the victim of a botched surgery in a USC hospital in 15 years, her claims could be subject to the arbitration agreement.
The trial court also found that the agreement was not mutual—it required Cook to arbitrate her claims against USC and all of USC’s related entities, including officers, trustees, administrators, employees, and agents. Conversely, the agreement only required USC to arbitrate its claims against Cook; it did not require USC’s related entities to arbitrate their claims against Cook. USC appealed.
Usually, both types of unconscionability need to be present for a court to refuse to enforce a contract. However, the two types do not need to be present to the same degree. For example, the more substantively oppressive the contract is, the less evidence of procedural unconscionability is required to conclude the contract is unenforceable.
The trial court found a low degree of procedural unconscionability, which the parties did not dispute on appeal. In terms of the substantive unconscionability, the trial court found the agreement was unconscionable for the following reasons: (1) the broad scope of the agreement; (2) the infinite duration; and (3) the lack of mutuality. The Court of Appeals considered the trial court’s reasoning on appeal and agreed with the trial court’s findings on all three accounts.
The Court of Appeals found the agreement was overly broad—it applied to claims totally unrelated to Cook’s employment with USC. The Court of Appeals reasoned that USC could have limited the terms to only claims that arose out of or related to her employment or termination, but chose not to.
The Court of Appeals likewise found the duration was unconscionable because it survived indefinitely following Cook’s termination. The plain language of the agreement stated that the contract would survive unless and until Cook and USC terminated the agreement in a writing, signed by both parties.
Finally, the Court of Appeals agreed that the agreement lacked mutuality. The plain language of the agreement provided a significant benefit to USC’s related entities, without any reciprocal benefit to Cook. The Court of Appeals found that USC gave no justification for this one-sided treatment. Therefore, the Court of Appeals upheld the trial court’s ruling that the arbitration agreement was unconscionable.
Note: This case is relevant for nonprofit organizations that use arbitration agreements in their employment contracts. An overly broad arbitration agreement may not be enforceable and nonprofits should consult with LCW to ensure their arbitration agreements are properly drafted.
Cook v. University of Southern California (May 24, 2024) 102 Cal.App.5th 312.