Supreme Court Ruling on a Recent Arbitration Agreement

California Supreme Court Rules an Arbitration Agreement an Auto Mechanic Signed Is Unenforceable

The San Francisco Gate reported on August 29, 2019, that the highest court in California ruled that an auto mechanic for Toyota of Oakland was not required to submit his wage claim to mandatory arbitration due to the “oppressive circumstances” of his signing. Instead, the court held that the decision of the California state labor commission in the amount of more than $150,000 for failure to pay wages and for damages and interest should stand.

The mechanic, Kenneth Kho, had worked for the Toyota company for about five years. The employer argued that the case was required to be heard before arbitrators due to the employment agreement Mr. Kho signed with the company in 2013.

The California Supreme Court ruling was a 6-1 decision. The court looked at the circumstances around the signing of the agreement and deemed them unfair for several reasons:

  • The mechanic’s primary language was Chinese
  • The contract was a “small-print agreement”
  • The contract was given to the mechanic to sign by a company employee who didn’t explain the terms of the contract to the mechanic and only gave the mechanic a few minutes to sign the agreement
  • The mechanic was not given a copy of the agreement – in either English or Chinese

The Supreme Court ruled that while the general presumption is that mandatory arbitration agreements are enforceable (and normally the labor commissioner wouldn’t be able to enforce its decision) – the agreement can’t be “unconscionable.” Unconscionable, the court wrote, means “that one party lacks a meaningful choice to agree and the contract unreasonably favors the other party.

Justice Carol Corrigan wrote in the majority opinion, “Considering the unusually coercive setting in which this bargain was entered, we conclude it was sufficiently one-sided as to render the agreement unenforceable.”