Armendariz v. Foundation Health Psychcare Services, Inc.

Marybeth Armendariz and Dolores Olague-Rodgers (Armendariz/Rodgers) (plaintiffs) were hired by Foundation Health Psychcare Services, Inc. (Foundation) (defendant). Armendariz/Rodgers signed employment application forms that contained an arbitration clause which related to future wrongful termination claims. Subsequently, they signed separate employment arbitration agreements which contained the same arbitration clause. The arbitration clause provided that Armendariz/Rodgers were compelled to arbitrate any claim they might make for wrongful termination of employment and further provided that should they be successful on a claim that their damages were limited to loss of earnings for the period from discharge to the arbitration award. A year later Armendariz/Rodgers' employment was terminated. They claimed that during their year-long employment they were subjected to sexual harassment and discrimination by their supervisors and co-workers. Armendariz/Rodgers sued for violations of the California Fair Employment and Housing Act (FEHA) on the ground of wrongful termination. Foundation then sought to compel arbitration. The trial court ruled that the arbitration clause was unconscionable and that since its unfairness permeated the entire arbitration agreement, the entire agreement was invalid. Although the California Court of Appeals held that the damages provision was unconscionable, it also held that is was severable and permitted enforcement of the rest of the arbitration agreement. Foundation appealed.