Peters v. Guaranteed Rate, Inc.

Background

Guaranteed Rate moved to compel individual arbitration of Peters’s claims. The arbitration agreement appeared in a document titled “Compensation Terms,” which the company sent to Peters as an attachment to an offer letter. Peters was instructed to sign the document within two business days.

Court’s analysis

The court explained that an arbitration agreement may be refused enforcement if it was unconscionable when made. Under California law, unconscionability requires both procedural unconscionability—unfairness in how the agreement was presented or formed—and substantive unconscionability—unfair or one-sided terms.

The court found some procedural unconscionability because the agreement was a contract of adhesion, meaning Peters had little ability to negotiate it. The court also found surprise because the arbitration clause appeared at the end of a document titled “Compensation Terms,” and because Peters had little time to consider the terms before signing.

The court found multiple substantively unconscionable provisions. The arbitration clause required arbitration in Chicago, Illinois, and selected Illinois law. The court stated that both provisions were invalid under California Labor Code section 925. The agreement also contained a one-way attorneys’ fees provision allowing the company to recover fees and costs relating to actions to enforce, defend, or prosecute the agreement. The court found that provision invalid under California law.

Guaranteed Rate argued that it was not trying to enforce the choice-of-law provision and did not oppose removing the choice-of-law and venue provisions. It also argued that the attorneys’ fees provision did not apply to Peters’s claims because those claims arose under labor laws rather than under the employment agreement. The court rejected these arguments, explaining that the provisions had to be evaluated as they existed when the agreement was made, not based on the company’s litigation positions.

The court concluded that the arbitration clause and attorneys’ fees provision, considered together, created a significant deterrent for employees seeking to exercise their rights. Because of the number and importance of the unlawful provisions, the court held that removing those terms and enforcing the rest of the agreement was not the proper remedy. The court also noted that Guaranteed Rate had previously been urged to revise its arbitration agreement, but had kept the challenged provisions in place.

Disposition

The court denied Guaranteed Rate’s motion to compel individual arbitration.