Court of Appeal Rejects Employer’s Contention that AT&T Mobility v. Concepcion Overruled Armendariz Unconscionability Analysis

     Plaintiff Erika Brenner, an attorney, sued her “employer” Glenn Johnson Law, LLP and its principal, attorney Glenn Johnson, for wrongful discharge and other employment-related claims.  Defendants moved to compel arbitration under a contractual arbitration provision.  Brenner opposed, arguing that the arbitration provision was unconscionable under the analysis set forth in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000).  Defendants argued Armendariz had no application, because Brenner was a partner, not an employee.  Agreeing with Brenner that the agreement was unconscionable, the trial court denied Defendants’ motion to compel arbitration.  Defendants appealed.  Brenner v. Glenn Johnson Law, LLP et al., Case No. G046532 (4th Dist. Div. 3 November 5, 2012) (Rylaarsdam, Acting P.J.) (unpublished).

     The Court of Appeal agreed that the trial court’s finding that the partnership agreement was “the functional equivalent of an employment agreement” was supported by substantial evidence; thus, there was no reason to disturb the trial court’s finding.   Brenner had a 5% interest, and Johnson had a 95% interest, Johnson dictated the terms, and the agreement set forth the terms of the employment relationship. 

     “Unconscionability” analysis requires an examination of two prongs:  substantive and procedural unconscionability.  The source of substantive unconscionability here was that the agreement, which purported to cover FEHA claims, did not require the employer to bear costs unique to arbitration, nor did it contain a limitation that the employee, if she her suit, could not be burdened with fees and costs unless the employee’s suit was brought frivolously or in bad faith.  While Plaintiff and Defendants disagreed as to whether the agreement was “take it or leave it”, there was substantial evidence that Brenner did not have a meaningful opportunity to negotiate the terms – enough to support a finding of procedural unconscionability, the second prong.

     Finally, there was an issue as to whether the provision for shifting of costs and fees to the prevailing party, if unconscionable, could be severed in order to save the arbitration provision.  Because there were two problems with the unlawful fees provision, the Court concluded it was not required to reform an agreement that was “permeated” by unconscionability.  Besides, Defendants failed to ask the superior court to exercise its discretion to sever.

     Affirmed.