Iravanian v. Translations.com, Inc.

Background

Translations.com, Inc. hired Hanieh Iravanian in 2021. On her start date, the defendants required her to sign an Independent Contractor Agreement before beginning work. The agreement included a provision stating that disputes would be submitted to binding arbitration in New York City by the American Arbitration Association, with legal costs determined by the arbitrator.

Iravanian filed claims alleging that the defendants failed to compensate her for required rest-break periods and failed to reimburse her for required use of her personal equipment. She asserted 16 claims under California statutes and the federal Fair Labor Standards Act. The defendants removed the case to federal court and moved to compel arbitration, and alternatively to dismiss or stay the complaint.

Delegation of arbitrability

The court first considered whether the agreement clearly and unmistakably gave an arbitrator authority to decide gateway questions of arbitrability—questions such as whether the parties agreed to arbitration and whether the agreement covers the dispute. The court held that it did not. The agreement referred to arbitration by the American Arbitration Association, but it did not incorporate the Association’s rules or otherwise state that an arbitrator would decide arbitrability. The reference selected the arbitration forum but did not establish the rules governing the proceeding.

Unconscionability

The court also analyzed unconscionability, a contract defense based on a lack of meaningful choice combined with terms that are unreasonably favorable to one side. It found significant procedural unconscionability because the defendants presented the agreement on the day Iravanian was to begin work, giving her the choice of signing it or finding a different job. The arbitration provision appeared at the end of an agreement containing more than 40 paragraphs, had no visual markers drawing attention to it, and did not require a separate signature or initial.

The court found substantive unconscionability—unfairness in the agreement’s terms—because the agreement allowed the arbitrator to impose arbitration costs on Iravanian and required arbitration in New York City. The court concluded that these provisions could impose a significant financial burden on Iravanian, who lived in California, earned between $30 and $40 per hour, and held the position as her full-time job. Viewed together, the provisions could make it prohibitively costly for her to pursue her rights.

The defendants’ offer in their reply brief to use California law and venue and the American Arbitration Association’s employment rules did not cure the agreement. The court also rejected severing the unfair provisions, finding that the agreement was permeated by procedural unconscionability and contained two substantively unconscionable provisions.

Disposition

The court concluded that the arbitration agreement was invalid. Judge Jon S. Tigar denied the defendants’ motion to compel arbitration and to dismiss or stay the complaint.