Tuesday, May 15, 2007
Ninth Circuit: O’Melveny Arbitration Agreement Is Unconscionable
By Kenneth Ofgang, Staff Writer
A dispute resolution program imposed by O’Melveny & Myers on all of its employees on three months’ notice is procedurally and substantively unconscionable, at least as applied in California, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
The panel sent former paralegal Jacqueline Davis’ suit against the firm back to the U.S. District Court for the Central District of California, where Judge Dickran Tevrizian, who has since retired, dismissed it for failure to comply with the DRP.
The judge ordered the parties to arbitrate Davis’ claims that she was denied lunch and rest breaks, and that she did not receive overtime pay to which she was entitled because she was forced to work during scheduled breaks, causing her total hours worked to exceed the eight hours per day and 40 hours per week thresholds.
Evidence presented at the hearing before Tevrizian showed that the program was adopted in August 2002, and that all employees were then notified that the program would be instituted in three months. Employees were advised who to speak to for further information about the program but were not given the right to opt out.
The program required, among other things, that all employment-related claims be submitted to the firm, with a demand for mediation, within one year of the date on which the employee first knew, or should have known, of the basis for the claim. Any claims not resolved in mediation had to be submitted to binding arbitration.
Davis, who had worked for the firm since June 1999 and left in July 2003, sued in February 2004. In addition to claims under the Fair Labor Standards Act and California Labor Code, she asked for a declaration that the DRP was unconscionable and constituted unfair business practices under California law.
Tevrizian upheld the DRP, ruling that Davis had “marketplace alternatives,” meaning that she could have quit and gone to work elsewhere rather than accept the agreement. He cited Dean Witter Reynolds, Inc. v. Superior Court, 259 Cal. Rptr. 789 (Cal. Ct. App. 1989), which held that an investor was bound by an agreement to arbitrate any dispute with his securities broker.
But Senior U.S. District Judge Samuel P. King of Hawaii, sitting by designation on the Ninth Circuit, said that under California law, the possibility of the employee finding a job elsewhere did not, in and of itself, allow the imposition of “take it or leave it” conditions of employment.
The judge cited Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006), in which the en banc court distinguished Dean Witter, in part because the plaintiff in the securities case was an attorney and a sophisticated investor.
King went on to conclude that the O’Melveny agreement was substantively unconscionable in that it:
•Allowed only one year to bring claims, even for violation of statutes as to which the limitations periods under California law were longer;
•Triggered the one-year period when the employee first learned or should have learned of the basis of the claim, and thus deprived employees of the right to compensation for “continuing violations;”
•Contained an overbroad confidentiality clause, preventing employees from obtaining discovery or other assistance from fellow employees having knowledge relevant to the claim;
•Gave the employer, but not the employee, partial access to the courts by allowing O’Melveny to sue for injunctive relief in order to protect against violations of the attorney-client privilege or work product doctrine “or the disclosure of other confidential information; and
•Barred the employee from seeking relief from any administrative agency other than the Equal Employment Opportunity Commission, the California Department of Fair Employment or Housing, or “any similar fair employment practices agency,” a description, King noted, that excluded the U.S. Department of Labor or the California Labor Commissioner.
The jurist went on to reject O’Melveny’s severability argument, saying the number of unconscionable provisions made it impossible to remove those parts from the agreement without “gutting” it.
Judges M. Margaret McKeown and Marsha Berzon concurred in the opinion.
O’Melveny, in response to a phone call seeking comment, issued a one-sentence statement:
“We are studying the decision, with which we respectfully disagree, and evaluating our options.”
Davis’ attorney, Peter M. Hart, could not be reached for comment.
The case is Davis v. O’Melveny & Myers, 04-56039.
Copyright 2007, Metropolitan News Company