Appellate court denies Genworth's motion to compel arbitration

By Sara McCleary | Nov 15, 2017

SAN FRANCISCO – The California Court of Appeal for the First Appellate District has affirmed a trial court’s decision denying an employer’s motion to compel arbitration in a suit brought against it by a former employee in a decision filed Oct. 26.

A trial court had denied Genworth North America Corporation’s motion, concluding that the arbitration agreement between the company and plaintiff Maya Baxter is procedurally and substantively unconscionable. Genworth appealed the decision, arguing the court had erred in its conclusion, as well as its refusal to sever any unconscionable provisions.

Baxter had worked for AssetMark Investment Services for five years when it transitioned to Genworth. In order to continue her employment, Baxter was required to sign a “conditions of employment acknowledgment,” which included the arbitration agreement. 

The court considered this when determining whether the arbitration agreement is procedurally unconscionable. “She could either quit her job of over five years or agree to the arbitration terms that were a condition of her continued employment,” wrote Justice William R. McGuiness in the court’s opinion. “The resolve program was presented in a take-it or leave-it manner. Baxter lacked equal bargaining power. These facts present a ‘high degree of oppressiveness’ supporting a finding of procedural unconscionability.”

Justice William R. McGuiness

Upon turning to the question of substantive unconscionability, the court considered several provisions within the agreement, including its limitations on discovery. The agreement’s guidelines set out that employees may not speak to other employees or their representatives about any employment claim, thus hindering the employee’s ability to conduct discovery.

On this matter, the court agreed with the trial court’s conclusion that “a complaining employee who was prohibited from contacting co-employees would be left to gamble as to which potential witnesses to depose within the limits set by the arbitration agreement, whereas the employer would have unfettered access to its employees and could cherry pick the witnesses it might choose to depose.”

The court further found that the agreement’s limitations on discovery, which allows for up to 10 interrogatories to other parties, up to five written requests for documents, two depositions of individuals, are substantively unconscionable. It conceded that Genworth was correct to say that the arbitrator has authority to expand discovery in a particular case as necessary, but the burden to show the necessity would be unduly placed on Baxter. Further, the court believed an arbitrator would feel constrained by the terms of the agreement to sufficiently expand discovery.

Upon appeal, Genworth contended the trial court erred by not severing the provisions of the arbitration agreement that it found to be unconscionable, but the appellate court disagreed, pointing out two factors. The first is the agreement’s inclusion of multiple unconscionable provisions. Quoting a U.S. Supreme Court case, the appellate court found “such multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage.” The second factor was that striking certain provisions would not be sufficient to make the agreement conscionable. Rather, the court would have to fully rewrite the provisions, which it lacked the power to do.

Baxter’s wrongful termination case had been filed when Genworth terminated her employment midway through Baxter’s medical leave of absence. She was told that organizational changes resulted in the elimination of her position but she alleges her job was given to a white male. She had previously expressed concerns about the company’s evaluation protocol that included information on the employees’ gender, race, and age, and claims she had been subsequently harassed and faced retaliation.

Justices Peter J. Siggins and Martin J. Jenkins concurred with the court’s opinion.

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