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California law provides that when a court finds that a contract or any clause in it was unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. A court may refuse to enforce the entire agreement only when it is permeated by unconscionability. Courts are to look to the various purposes of the contract. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.
After submitting an online job application, plaintiff Stephanie Prasad was hired in May 2016 by defendant Pinnacle Property Management Services, LLC ("Pinnacle") as a property manager for an apartment complex. Her employment was terminated just under a year later. According to Prasad, she suffers from type I diabetes and generally was able to perform her work duties, but occasionally required certain accommodations, such as a modified work schedule. She claimed that, due in part to lengthy work hours, she began experiencing health complications related to her diabetes. Prasad was placed on medical leave for two weeks in Oct. 2016. Upon her return, Prasad claimed that her position was filled by another employee, and that she was given a new position as a "Roving Manager." Prasad considered the reassignment a demotion because it was temporary in nature and she earned less money than she did as a property manager. Claiming that Pinnacle misclassified its property managers as exempt from overtime pay, Prasad filed a putative class, collective, and representative action against Pinnacle in federal district court. Pinnacle filed a motion to compel arbitration pursuant to an Issue Resolution Agreement ("IRA") it claimed that Prasad assented to and signed when she applied for employment with the company. Prasad opposed Pinnacle's motion, arguing that she never signed the IRA and that the it was unenforceable and unconscionable for a number of reasons.
Was the IRA unenforceable because several of its terms were unconscionable?
The court severed those portions of the IRA that were unconscionable, granted are severed from the Agreement, granted Pinnacle's motion to compel arbitration as to Prasad's individual claims, and the matter was stayed pending the completion of the arbitration. The court ruled, inter alia, that the IRA was not so tainted with illegality that there was no lawful object of the contract to enforce. The court rejected Prasad's contention that extirpating the unconscionable provisions from the IRA would render the contract a nullity.