Pappas v. AMN Healthcare Services

Background

Plaintiffs Jean Pappas, Johannah Hetherington, Nikole Domke, Michelle Anderson, and Jane Angell are traveling nurses. AMN Healthcare Services, Inc. provides temporary healthcare staffing and places healthcare professionals in temporary assignments. Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals were also defendants.

The plaintiffs alleged that AMN recruited them for assignments at Kaiser facilities and later demanded that they accept lower pay or face termination. They brought claims against AMN under the California Labor Code and California’s Unfair Competition Law, along with claims for breach of the implied covenant of good faith and fair dealing, promissory estoppel, fraudulent inducement, fraudulent concealment, and negligent misrepresentation. They also sued Kaiser for inducing breach of contract and tortious interference with contractual relations.

Before beginning their assignments, each plaintiff signed a two-page Professional Services Agreement. The agreement required arbitration of claims against AMN, its affiliates, employees, agents, successors, assigns, and customers to which a professional was assigned. It also required arbitration on an individual basis and waived class or collective actions. The agreement stated that the Federal Arbitration Act would govern, or, if that law did not apply, the arbitration law of the state where the professional rendered services.

Motion and Legal Standard

AMN and Kaiser moved to compel arbitration. The plaintiffs did not dispute that an arbitration agreement existed or that their individual claims were covered by it. They argued that the agreement was unconscionable, meaning unfairly imposed or unfair in its terms, and therefore could not be enforced.

The court applied the Federal Arbitration Act and California contract law. Under that framework, the court considered whether the agreement was procedurally unconscionable—formed through oppression or surprise—and substantively unconscionable—containing overly harsh, oppressive, or one-sided terms. California applies a sliding scale: stronger evidence of one type of unconscionability can offset weaker evidence of the other type.

Procedural Unconscionability

The court found that the agreements were contracts of adhesion because they were standardized forms drafted by the defendants and presented as a condition of employment on a take-it-or-leave-it basis. That established some procedural unconscionability but did not, by itself, make the agreements unenforceable.

The court also found undue time pressure. Although the defendants’ evidence showed that many plaintiffs received the agreements between 20 and 30 days before their assignments began, almost all signed within one day or less of receiving them. The court found that this supported the plaintiffs’ evidence that AMN recruiters told them to sign immediately. The court concluded that the time pressure was evidence of oppression.

The plaintiffs also argued that AMN’s failure to identify or provide the specific JAMS arbitration rules contributed to procedural unconscionability. The court rejected that argument because the plaintiffs did not identify any substantively unfair term in the unidentified rules. The court found, however, that the agreement’s cost-shifting language and choice-of-law language created some unfair surprise. The agreement did not clearly tell the nurses which law would determine whether they might have to pay arbitration costs or attorney’s fees. Overall, the court found a moderate degree of procedural unconscionability.

Substantive Unconscionability

The agreement stated that the arbitrator would award the prevailing party costs and reasonable attorney’s fees to the maximum extent permitted by law, while applying the fee-shifting rules that a court would apply to the claims. The plaintiffs argued that this language could require them to pay AMN’s fees or costs. The defendants argued that the qualifying language made the provision lawful because it required the arbitrator to apply the same rules a California court would apply.

The court did not resolve the broader dispute over whether qualifying language can sometimes save an otherwise unfair provision. It held that the language here did not adequately tell employees that the fee-shifting provision would not be enforced when California law prohibited such an award. Because the clause could give employees the impression that they would have to pay significant arbitration costs or the defendants’ fees, the court found the fee-shifting provision substantively unconscionable.

Sliding Scale and Severance

Applying California’s sliding-scale approach, the court held that the agreements’ moderate procedural unconscionability, combined with a high degree of substantive unconscionability, made the agreements unconscionable.

The court then considered whether it could sever, or remove, the fee-shifting provision and enforce the remainder of the arbitration agreement. Although California law generally permits courts to sever unlawful contract provisions, the court declined to do so. It agreed that cost- and fee-shifting provisions can discourage employees from bringing claims and that removing such provisions could give employers little incentive not to include them. The court therefore declined to sever the unconscionable provision.

Disposition

The court denied Defendants’ motion to compel arbitration. The opinion did not state a separate disposition of the plaintiffs’ underlying claims.