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Under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16, the enforceability of an arbitration agreement is ordinarily to be determined by the court. The parties may agree in the arbitration provision, however, that the enforceability issue will be delegated to the arbitrator. To establish this exception, it must be shown by clear and unmistakable evidence that the parties intended to delegate the issue to the arbitrator. The "clear and unmistakable" test reflects a heightened standard of proof. That is because the question of who would decide the unconscionability of an arbitration provision is not one that the parties would likely focus upon in contracting, and the default expectancy is that the court would decide the matter. A contract's silence or ambiguity about the arbitrator's power in this regard cannot satisfy the clear and unmistakable evidence standard.
Respondent employee, Lena Ajamian, signed an employment agreement with CantorCO2e, L.P., section 8 of which, provided for an arbitration clause. Notwithstanding the arbitration clause, section 11 of the Employment Agreement anticipated that a court may make certain determinations. After the termination of her employment, respondent filed a complaint against appellants, asserting claims for sexual discrimination, sexual harassment, retaliation, failure to pay overtime, failure to provide rest breaks and meal breaks, failure to keep accurate records or to provide required pay stubs, failure to pay respondent all amounts due to her upon termination, and violation of Business and Professions Code section 17200. Appellants filed a motion to compel arbitration pursuant to the terms of the Employment Agreement. The trial court denied appellants’ petition. Appellants challenged the decision.
Under the circumstances, could the arbitration agreement be enforced?
The Court of Appeal affirmed the order of the trial court. The court held that the arbitration agreement did not provide clear and unmistakable evidence that the parties intended to delegate authority to the arbitrator to decide whether the arbitration provision itself was unconscionable, even though the arbitration provision was broadly worded and indicated that arbitration might be conducted under rules of an arbitration service that gave arbitrators the power to decide the validity of arbitration agreements. The clear and unmistakable evidence test was not met by language requiring arbitration of “any disputes, differences or controversies arising under” a contract or additional language referring to “all matters.” The unconscionability issue was therefore for the court to decide. The court also held that the arbitration provision was properly found to be procedurally unconscionable because it was a required term in a nonnegotiable agreement. It was properly found to be substantively unconscionable in part because its attorney fee provision was not mutual and because it required that New York law be applied, resulting in the employee's waiver of unwaivable rights under substantive California statutes. Because the agreement was unconscionable in more than one respect, it was proper to find that it could not be saved by severing the offending terms.