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Employer Can’t Compel Employee to Arbitrate Claim

Courts place significant restrictions on the enforceability of arbitration agreements so they do not effectively prohibit the employee from enforcing their rights.

Ritarose Capili was a sales associate at a Finish Line store in California. When she was hired in August 2013, she was required to sign an agreement that required her to arbitrate employment-related disputes with Finish Line.

In mid-2014, after she was diagnosed with diabetes and anxiety that was exacerbated by sleeping issues that occurred during her pregnancy, Capili requested a leave. She was terminated July 8, 2014. Capili sued Finish Line claiming that she was fired because of her pregnancy and because she tried to exercise her legal right to take leave under California’s Fair Employment and Housing Act, and that she wasn’t given a reasonable accommodation for medical conditions related to her pregnancy. When Finish Line moved to compel the case to arbitration, the U.S. District Court for the Northern District of California ruled that the arbitration agreement was both procedurally and substantively unconscionable.

The Ninth Circuit appellate court agreed. The Court held that the agreement was procedurally unconscionable because it was “adhesive” in that it was offered “on essentially a ‘take it or leave it’ basis.” They further held it was substantively unconscionable because its cost sharing provision “imposes substantial nonrecoverable costs on low-level employees just to get in the door, effectively foreclosing vindication of employees’ rights” and because it contained judicial carve-outs that allowed Finish Line, but not Capili, to seek judicial resolution of certain specified claims.

Capili v. The Finish Line Inc., Case No. 15-16657 (9th Cir. July 3, 2017).

Impact: The courts place significant restrictions on the enforceability of arbitration agreements so they do not effectively prohibit the employee from enforcing their rights.

Mark T. Kobata and Marty Denis are partners at the law firm Barlow, Kobata and Denis, which has offices in Beverly Hills, California, and Chicago. Comment below or email editors@workforce.com.