Hale v. Brinker International, Inc.

Background

Brinker International, Inc. moved to compel arbitration, meaning it asked the court to require Amanda Hale to pursue her dispute in arbitration rather than in court. Hale had signed the arbitration agreement seventeen years before the court’s ruling. The agreement stated that the parties would share arbitration costs equally unless the arbitrator awarded costs differently in the final decision.

Court’s Analysis

The court applied California law, under which unconscionability has both procedural and substantive elements. Procedural unconscionability concerns unfairness in how an agreement was formed, including situations where an employee has little or no ability to negotiate with an employer. The court found the agreement at least somewhat procedurally unconscionable for that reason.

The court also found the cost-splitting provision substantively unconscionable. California law prohibits employers from shifting arbitration costs to employees. The court explained that such a provision can discourage employees from bringing claims because arbitration may cost thousands of dollars, particularly when employees seek to pursue wage-and-hour claims.

Brinker appeared to concede at the hearing that the cost-splitting provision was unconscionable under California law, but argued that the court should sever it—that is, remove the offending provision while enforcing the rest of the agreement. California law allows a court to enforce the remainder of a contract after removing an unconscionable clause, but the court declined to do so here.

The court reasoned that Brinker had an opportunity to revise the agreement after the California Supreme Court’s decision in Armendariz, which addressed arbitration costs, but did not remove the provision. The agreement showed that it had been revised in December 2004, more than four years after that decision. The court also considered the provision consequential because it could chill employees from pursuing their rights. Enforcing the remainder of the agreement after removing the provision could give employers little incentive to avoid including similar cost-shifting terms.

Disposition

The court held that the cost-splitting provision was substantively unconscionable and that it was sufficient reason not to enforce the arbitration agreement as a whole. Judge Vince Chhabria denied Brinker’s motion to compel arbitration.