California Supreme Court Upholds Arbitration Agreement Provision Allowing Parties to Seek Provisional Relief in Court
Today, the California Supreme Court issued its opinion in Baltazar v. Forever 21, Inc., rejecting an employee’s argument that her arbitration agreement with her employer was unconscionable and unenforceable simply because it permitted the parties to seek a temporary restraining order or preliminary injunction in court pending completion of an arbitration. The plaintiff argued that this provision unfairly favored the employer because employers are more likely to benefit from such a provision than an employee (because employers more commonly seek restraining orders and/or injunctive relief relating to claims against an employee for misappropriation of trade secrets and similar wrongful business practices). The Court disagreed, holding that the provision simply conformed to section 1281.8 of the California Abitration Act (CCP 1281.8), which expressly allows parties to an arbitration agreement to seek “provisional” relief (a temporary restraining order or preliminary injunction) in court while an arbitration proceeding is pending (or before it has commenced) upon a showing that absent such relief, the award to which the applicant may be entitled in arbitration would be rendered ineffectual. The arbitration agreement between Forever 21 and its employee mirrored (and cited) CCP section 1281.8. As such, the Court held that the provision did not afford the employer with any greater rights than it was already entitled to under state law. The Court also rejected the employee’s argument that the provision unfairly favored Forever 21 because Forever 21 would be more likely to invoke it than an employee. The Court explained that the provision was worded to allow either party, and not just Forever 21, to seek provisional relief in court pending arbitration. The fact that an employer may resort to seeking such relief more often than an employee does not render the provision (or CCP section 1281.2) unconscionable. The Court disapproved of the contrary holding on this issue in Trivedi v. Curexo Technology, 189 Cal.App.4th 387 (2010).
The Court distinguished, but did not disapprove, two other cases, Fitz v. NCR Corp., 118 Cal.App.4th 702 (2004), and Mercuro v. Superior Court, 96 Cal.App.4th 167 (2002), which held that provisions in arbitration agreements exempting from arbitration the claims most likely to be brought by an employer (non-compete, misappropriation of trade secrets) are unconscionable. Those courts reasoned that an agreement lacks mutuality where the employer is free to bring claims in court but the employee is required to arbitrate his/her claims. The plaintiff in Forever 21 argued that the provision in the Forever 21 agreement had the same result and was, therefore, unconscionable. The California Supreme Court disagreed, reasoning that the provision in the Forever 21 agreement did not exempt any employer claims from arbitration; it simply allowed the parties to seek provisional (temprorary) relief in court if necessary to preserve the status quo while the arbitration was pending and until the merits were finally resolved in arbitration.
The take away here is that the Forever 21 case should not be misinterpreted as allowing employers to require employees to arbitrate their claims, while permitting the employer to bring claims against its employees in court. Such provisions generally have been, and likely will continue to be, regarded as unconscionable. The Forever 21 decision simply confirms that employers can include in their arbitration agreements provisions similar to CCP 1281.8 allowing the parties to seek provisional relief in court if needed to protect their rights pending the completion of the arbitration.