California Court Finds Employment Arbitration Agreement Unconscionable

Many employers ask their employees to sign arbitration agreements as a condition of employment. These agreements force employees to arbitrate any employment disputes that might arise instead of pursuing relief in the courts. President Biden signed a law in 2022 that prohibits mandatory arbitration in cases involving allegations of sexual harassment. However, this law did not apply retroactively to cases that were filed before its enactment. In Murrey v. Superior Court, Cal. Ct. App., Case No. G061329, the California Court of Appeal analyzed whether the federal law applied to the plaintiff’s case and whether the arbitration agreement she signed was unconscionable to such a degree that it should be deemed unenforceable even if the federal law didn’t apply.

Factual and Procedural Background

Cassandra Murrey was a 46-year-old woman who was employed by General Electric (GE) as an ultrasound equipment product sales specialist. She was hired in 2018 and routinely was recognized as a top performer by the company. In 2020, GE employed more than 200,000 people and earned gross revenues of $79.6 million.

Joseph Gorzycka, III was hired by GE in 2019. In 2020, he was promoted to become Murrey’s direct supervisor. From the time Gorzycka was promoted to the supervisory position, he continuously spoke about his sex life at work in front of Murrey and others. He also regularly discussed various sex acts and made unwanted sexual advances. Murrey claimed that Gorzycka groped her while they were at a team meeting. When she tried to get away, Gorzycka gave her a piece of chocolate that had been laced with THC without Murrey’s knowledge.

Murrey complained to GE’s human resources department about Gorzycka’s conduct. She was interviewed by telephone about what had occurred. However, Murrey claimed that GE never investigated her complaint or took appropriate remedial action. Later, the company told her that Gorzycka was no longer working for GE and subsequently engaged in a pattern of retaliatory action against Murrey. Murrey claimed the company denied her appropriate support for her job and refused to promote her.

She filed a complaint against GE alleging multiple causes of action, including unlawful sexual harassment, labor code violations, failure to stop harassment, and retaliation for Murrey’s engaging in protected activity by reporting Gorzycka’s misconduct. She claimed damages for emotional distress, lost employee benefits, lost bonuses, lost wages, and lost deferred compensation.

Eight months after she filed her complaint, GE filed a motion to compel arbitration. The lead HR specialist, Michelle Thayer, submitted a declaration in support of GE’s motion that alleged that all newly hired GE employees went through an online onboarding process. During that process, newly hired employees were directed to various links within its portal to complete various documents as required tasks. One of those tasks involved reviewing GE’s alternative dispute resolution booklet and signing an acknowledgment that each employee agreed with the terms and conditions of employment.

The booklet included instructions that employees had to go through two internal reviews with the management team without an attorney to resolve disputes. Employees would then need to go through mediation and arbitration led by GE’s designated organization but could be represented by an attorney during these phases.

GE argued that Murrey’s signed acknowledgment that she had read the documents and agreed to the terms and conditions of employment with the company compelled her to arbitrate her sexual harassment and retaliation claims. Murrey argued that she was presented with many documents to review and sign during the onboarding process and had little time to carefully review them because of pressure from her supervisor. The trial court granted GE’s motion to compel arbitration. The court found that the arbitration agreement covered her claims and was a contract of adhesion. While it found that Murrey met her initial burden to show unconscionability, it found that she failed to show that it was sufficiently unconscionable to prevent mandatory arbitration. Murrey filed an appeal.

Issue: 1) Did the Ending Forced Arbitration in Sexual Harassment Cases signed by President Biden in March 2022 apply retroactively to Murrey’s case? 2) Was the arbitration agreement acknowledged by Murrey so unconscionable that the court should have found the agreement void and unenforceable?

Murrey argued that the federal Ending Forced Arbitration in Sexual Harassment Cases act should have been retroactively applied to cover her case by the court. In the alternative, she also argued that if it didn’t apply, the trial court erred by finding that GE’s contract of adhesion compelling arbitration was not sufficiently unconscionable for the court to declare it void and unenforceable.

Rules: 1) The Ending Forced Arbitration in Sexual Harassment Cases prohibits mandatory arbitration in sexual harassment cases and applied to any cases filed after its enactment. 2) An arbitration agreement must be both procedurally and substantively unconscionable for a court to declare it unenforceable.

The Ending Forced Arbitration in Sexual Harassment Cases law amended the Federal Arbitration Act (FAA). This law prohibits mandatory arbitration clauses for sexual harassment disputes. However, the act also includes a provision that it was effective immediately upon its enactment, and Murrey’s case predated the act’s enactment.

Courts can still find arbitration agreements to be unenforceable as long as they are unconscionable. To find that an agreement is sufficiently unconscionable, there must be evidence of both procedural and substantive unconscionability.

Analysis

Arbitration agreements are common among employers in California. Since federal law preempts state law, the Federal Arbitration Act results in many arbitration agreements being upheld by the state’s courts. However, when arbitration agreements are used to force victims of workplace sexual harassment into arbitration rather than pursuing their claims in court, they prevent many victims from securing the relief they deserve. This is because of the unequal footing employees are on vs. their employers and the fact that employers typically select arbitrators that are biased in the employers’ favor.

in Murrey’s case, the Court of Appeal first considered whether the End to Forced Arbitration in Sexual Harassment Cases Act applied. The court noted that a section of the act clearly stated that it was immediately effective for sexual harassment cases filed under state law. The court indicated that it was unclear whether the law could be retroactively applied, however. It noted that a different federal court had found that the law only applied to cases filed after March 3, 2022, because a footnote in the act indicated that it applied to any cases filed on or after the date of its enactment. The court found that since Murrey’s lawsuit was filed a year before the enactment of the new law, it didn’t apply to her case.

The court then considered the unconscionability of the arbitration agreement. It noted that a trial by jury is a constitutional right in California. It then considered Cal. Code Civ. Proc. § 1281. This law specifically authorizes pre-dispute arbitration agreements as long as they do not involve grounds under which contracts can be found to be unenforceable.

For a contract to be considered unduly unconscionable, it must include both procedural and substantive unconscionability. The degrees of procedural and substantive unconscionability don’t need to be the same. When a contractual provision is substantively unreasonable to a high degree, the plaintiff does not have to show the same degree of procedural unconscionability.

Arbitration agreements are contracts of adhesion since employment offers are contingent on the employee’s acceptance of them. Since Murrey’s employment offer was contingent on her acceptance of GE’s arbitration agreement, the court found that it was procedurally unconscionable. Murrey argued there was a higher degree of procedural unconscionability since she wasn’t given a copy of the arbitration agreement and the procedures used by the company during the first two phases were secret. The court found that the arbitrator GE used was not disclosed to Murrey and did not explain how the arbitration organization was selected until after Murrey filed her lawsuit.

The court then looked at the substantive unconscionability of the arbitration agreement. It found that the arbitration agreement provided that each party would bear its costs of discovery, but the trial court severed that provision. However, the arbitration agreement also provided default limits for discovery, and plaintiffs couldn’t obtain discovery until they had reached the later stages of the company’s alternative dispute resolution procedure. By this time, the company would have been able to gain a full understanding of the arguments of the employee, which made the process unfair and one-sided.

Conclusion

The court found that GE’s arbitration agreement was unduly unconscionable. It issued a peremptory writ of mandate ordering the trial court to vacate its order and schedule the case for further proceedings in court. Murrey was granted her costs on appeal.

Consult an Experienced Los Angeles Employment Lawyer

Retaining the right to pursue legal remedies through the court process is important for sexual harassment victims. Court litigation places plaintiffs on more equal footing with their employers. If you have been the victim of sexual harassment at work and have signed an arbitration agreement, you should talk to attorney Steven M. Sweat to learn about your rights. Call us today for a free consultation at 866.966.5240.