Apple v. Ionpath, Inc.

Background

Jennifer Apple worked as Ionpath, Inc.’s Controller from approximately September 1, 2023, through August 22, 2024. Paul Davy was Ionpath’s Vice President of Customer Experience and later its Chief Executive Officer. Apple’s complaint asserted claims under federal and California law for discrimination based on race, national origin, and sex; harassment; retaliation; defamation; and other claims.

Apple’s signed employment offer letter contained an arbitration provision covering claims arising from or related to her employment and its termination. The provision required mandatory, final, and binding arbitration and stated that the parties would share the arbitrator’s fees equally. It also addressed administrative claims, arbitration through JAMS, confidentiality, and other matters.

Motion and parties’ positions

The defendants moved to compel arbitration under the Federal Arbitration Act and to dismiss the complaint. They acknowledged in their briefing that the fee-sharing provision was unenforceable and unconscionable. They nevertheless argued that the court should sever, or remove, that provision and enforce the remainder of the arbitration agreement. The defendants also offered to remove the provision after Apple filed suit and her attorney challenged it.

The court explained that an arbitration agreement is procedurally unconscionable when contract formation involved oppression or surprise caused by unequal bargaining power, and substantively unconscionable when its terms are overly harsh or one-sided. Under California law, both forms generally must be present before an arbitration agreement is unenforceable. The court concluded that Apple did not need to provide additional evidence of unconscionability because the defendants had repeatedly conceded that the fee-sharing clause was unconscionable and unenforceable.

Court’s analysis

California law generally permits courts to sever an unlawful contract provision and enforce the remainder. But California law also gives courts discretion to refuse to enforce the entire agreement when an unconscionable provision should not be severed. Courts may decline to sever an arbitration clause when unconscionability permeates the agreement, including when the agreement contains multiple unconscionable provisions. The court noted that other decisions had refused to sever similar arbitration-fee provisions even when they were the only unconscionable terms.

The court found the fee-sharing clause significant because requiring employees to share arbitration costs could discourage them from pursuing claims due to the potentially high expense. It also emphasized that California had prohibited this type of mandatory employee fee-sharing for more than two decades, that Ionpath had included the clause in an employment offer letter, and that the defendants did not try to remove it until after Apple sued and her counsel objected. The court viewed this as overreaching and concluded that severing the clause could reduce employers’ incentive to avoid including unlawful cost-shifting terms in arbitration agreements.

Ruling

The court denied the defendants’ request to sever the fee-sharing provision. It denied the defendants’ motion to compel arbitration and dismiss the case. Because it would not compel arbitration, the court did not decide whether the arbitration agreement covered all of Apple’s claims. It also did not decide whether dismissing the complaint, rather than staying the case while arbitration proceeded, would be proper.

The court ordered the defendants to respond to the complaint by June 30, 2025. It scheduled an initial case-management conference for August 12, 2025, with a joint case-management statement due August 5, 2025. Judge Susan Van Keulen signed the order.