Court Says Arbitration Agreement With Independent Contractor Invalid
This week a California court held that a mandatory arbitration provision in an independent contractor agreement is subject to the same standards as arbitration agreements in the employment context. In Wherry v. Award, Inc., the court held refused to enforce an agreement to arbitrate between Award, Inc. andtwo of its independent contractors, finding the agreement procedurally and substantively unconscionable under Armendariz standards. The plaintiffs were salespersons who worked for Award, Inc. asindependent contractors.Each of their independent contractor agreements contained a mandatory arbitration provisionfor resolving any disputes between them and Award, Inc. AfterAward, Inc. terminatedthe plaintiffs' services, the plaintiffs sued forgenderdiscrimination and harassment under FEHA. Award, Inc. moved to compel arbitration.
The courtrefused toorder the case to arbitration,finding the arbitration agreement unconscionable and unenforceable. The court reasoned that the agreementwas presented on a take it or leave it basis with no real opportunity to negotiate terms, and included ashortened statute of limitations and afee-shifting provision that were contrary to FEHA. Notably, the courtfurther held that the fact that plaintiffs were independent contractors, not employees, made no difference to the analysis of enforceability of the arbitration agreement.