Another Unconscionable Clause

On de nova review, the California Court of Appeal held that a mandatory arbitration clause in an employment agreement, offered as part of a settlement on the eve of trial, was subject to minimum

After Fred Nyulassy's employment with Lockheed Martin's predecessor was terminated, he sued, claiming age discrimination. In the settlement of that lawsuit, Lockheed agreed to re-hire Nyulassy, provided that he sign Lockheed's employment agreement, which (1) barred him from bringing court proceedings, (2) required him to try to resolve disputes with management before commencing arbitration, and (3) deemed him to have waived his right to arbitrate if he failed to bring a claim within 180 days of termination or the happening of other disputes.

After he was rehired, Nyulassy sued Lockheed, alleging he was demoted in retaliation for whistleblowing and other protected activities. Lockheed moved to compel arbitration while Nyulassy argued that the arbitration agreement was unconscionable, since he signed it when he needed a job, and the settlement offer came on the eve of trial and was non-negotiable. The trial court held that the arbitration agreement was unenforceable.

The California Court of Appeal upheld the trial court's decision, finding the employment agreement lacked mutuality. The court relied on the Arm,endariz decision, which requires a lawful employment arbitration agreement to satisfy these minimum requirements. It must (1) provide for neutral arbitrators, (2) allow more than minimal discovery, (3) require a written award, (4) permit all types of relief available in court, and (5) not impose unreasonable costs or arbitrator's fees or expenses on the employee. The court agreed that Lockheed's arbitration agreement failed to meet these requirements. Moreover, it was one-sided since it only required Nyulassy, not Lockheed, to arbitrate all employment-related disputes. Moreover, it allowed Lockheed to preview Nyulassy's claims and therefore obtain an advantage if the matter went to arbitration. In addition, the 180-day time limit severely limited the time to bring a claim. These factors made the arbitration agreement substantively unconscionable.

The court rejected Lockheed's claim that this was a post-dispute arbitration agreement, which could not be considered procedurally unconscionable. The court reasoned that when Nyulassy signed the employment agreement, he was about to become a Lockheed employee.

Nyulassy v. Lockheed Martin Corp, 120 Cal. App. 4th 1267 (Cal. Ct. App. 2004).

-Liz Carson