California court finds broad arbitration clause unconscionable

A recent case out of California, Pimpo v. Fitness International, LLC, D071140 (behind paywall), finds an arbitration clause in a contract unenforceable due to unconscionability. 

In the case, Pimpo worked at one of Fitness International’s fitness centers, where another employee sexually harassed her. Pimpo made several reports about the other employee’s behavior and ultimately ended up suing over the sexual harassment. Fitness International responded by moving to compel arbitration based on a contract Pimpo electronically signed when she submitted her application for employment with Fitness International. However, the very terms of that agreement said it was only effective for 45 days, so it had expired by the time Pimpo filed suit. Fitness International tried to argue that Pimpo had signed a different arbitration agreement upon accepting employment but the trial court found no evidence of such agreement and the appellate court said that Fitness International’s statement that it moved to compel arbitration based on this other agreement for which there was no evidence “border[ed] on a misrepresentation to this court.”

So the appellate court already wasn’t too happy with Fitness International as it began its unconscionability analysis, which it turned to in the interest of thoroughness. The arbitration clause that Pimpo signed when she applied for employment, the court concluded, was unenforceable due to unconscionability. Because the contract was a contract of adhesion presented to Pimpo on a take-it-of-leave-it basis, the court found that it was “by definition procedurally unconscionable.” The court then went on to note, though, that Pimpo was in the usual position of someone applying for a job: She needed money to survive and did not have the resources to hire an attorney to look over the contracts for every application that she submitted. 

The court also found substantive unconscionability because the clause was drafted to be breathtakingly broad. It explicitly required Pimpo to give up her right to a jury trial on all claims, “even those unrelated to the application or her employment,” against Fitness International and “its officers, directors, employees, agent, affiliates, entities, and successors,” forever. The court noted that this language meant that if Pimpo got into a car accident with a Fitness International employee, it was covered by this arbitration clause. Fitness International tried to argue that the clause should be read more narrowly than that but the court noted that that was not how it was drafted (and Fitness International had drafted it). In addition, the discovery procedure that the arbitration clause allowed for placed Pimpo at such a disadvantage that the court agreed that was substantivaly unconscionable, too. 

Beware of drafting your clauses too broadly. Such can be the outcome. Even arbitration clauses can have their limits.