Baltazar v. Forever 21, Inc., et al.

367 P.3d 6, 200 Cal. Rptr. 3d 7, 62 Cal. 4th 1237 (2016)

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Baltazar v. Forever 21, Inc., et al.

California Supreme Court
367 P.3d 6, 200 Cal. Rptr. 3d 7, 62 Cal. 4th 1237 (2016)

Facts

During a job interview, Maribel Baltazar (plaintiff) filled out an employment application for work at Forever 21, Inc. (defendant). Baltazar initially refused to sign the pages of the application containing the arbitration agreement. However, the interviewer explained to Baltazar that she could not be hired without signing the arbitration agreement, so Baltazar signed it. Years later, after Baltazar resigned, she filed suit in superior court against Forever 21, citing various claims covered by the arbitration agreement. The arbitration agreement provided that all claims related to employment were subject to arbitration, and the agreement listed several examples. The agreement provided that steps would be taken to ensure that any of Forever 21’s trade secrets would not be disclosed publicly. The agreement also provided that either party could seek a preliminary injunction in court. Forever 21 moved to compel arbitration, but Baltazar argued that the agreement to arbitrate was not enforceable because it was unconscionable. Unconscionability had two components: procedural unconscionability and substantive unconscionability. Procedural unconscionability occurred if there was lack of a real choice by one party. In assessing procedural unconscionability, courts assessed any degree of surprise or unfair practices involved, such as duress or lies, as a result of unequal bargaining power. Substantive unconscionability occurred if the terms of the contract were extremely harsh or too one-sided. The presence of a degree of procedural unconscionability did not mean that a contract was unenforceable. For example, contracts of adhesion were very common and often contained some measure of procedural unconscionability even if there were no unfair practices, yet these contracts were enforceable if the terms of the contract were not too one-sided. The superior court agreed with Baltazar, ruling that the agreement was procedurally unconscionable because Baltazar had to sign as a requirement of employment. The court agreed with Baltazar’s argument that the agreement was substantively unconscionable and one-sided because, among other reasons, it only listed sample claims that an employee might bring, suggesting Forever 21 was not bound, and the agreement allowed Forever 21 to protect its trade secrets. The superior court denied the motion to compel. However, an appellate court reversed, finding procedural unconscionability but not substantive unconscionability.

Rule of Law

Issue

Holding and Reasoning (Kruger, J.)

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