Should a truck driver be expected to understand that, by applying for a job in San Francisco, he agreed to give up protections provided by the California Labor Code and to settle any disputes with his employer through arbitration conducted under New York law?

That’s just not reasonable, said the California Court of Appeal in a recent decision (Subcontracting Concepts v De Melo).

Chafie Gabriel Pereira Moreira De Melo, a Portuguese immigrant, was hired as a by OnTrac, a package delivery company, as an owner/operator of a delivery truck. Responding to an ad, De Melo went to a warehouse, where he was offered a position and told he had to sign employment documents “on the spot” to get a job.

De Melo was not fluent enough in English to fully understand the documents, the appellate court noted, and no one offered to translate them into Portuguese or explain them to him.

In addition, it said, he “was not given time to carefully review the employment documents at the warehouse, and no one told him he could have an attorney review the documents or that he could negotiate their terms before he signed them.”

The employment agreement stated that De Melo was an independent contractor, not an employee. Its five pages of small print included 27, the 26th of which required arbitration of any dispute between him and the company.

The arbitration had to be conducted by a 3-person panel of experts, under the laws of the State of New York. Claims could not be made on behalf of more than one employee. Both parties would have to bear their own costs for the arbitration, and no attorney’s fees or other costs could be awarded to either party.

In January of 2017, De Melo filed an administrative wage claim with the California Labor Commissioner. He said he was in fact an employee of the company, not an independent contractor, and as such was owed unpaid wages for overtime, meal and rest periods. He also sought statutory penalties for alleged violations of the labor code.

The company went to court, seeking to compel De Melo to arbitrate his claims.

In May of 2017 the court denied the petition to compel arbitration, ruling that the arbitration clause was “unconscionable.” The court said it could not simply toss out the unacceptable provisions, “because the arbitration clause was permeated with unconscionability.”

The company appealed.

The appellate court noted that unconscionability refers to “an absence of meaningful choice” for one or both of the parties, “together with contract terms which are unreasonably favorable to the other party.”

Unconscionability, the appellate justices said, out can be procedural, resulting from “oppression or surprise” due to the unequal bargaining power of the parties, or substantive, meaning it causes the terms of the agreement to be overly harsh or one-sided. “Both procedural and substantive unconscionability must be present for the court to refuse to enforce a contract under the doctrine of unconscionability.”

The justices said they didn’t need to decide whether De Melo was an employee or an independent contractor to rule on the issue of unconscionability of the arbitration clause.

When it comes to arbitration agreements in employment contracts, the economic pressure on job applicants is “particularly acute,” the justices said, because “few employees are in a position to refuse a job because of an arbitration requirement.”

The document presented to De Melo required him to pay his share of the costs of arbitration, which “are often prohibitively expensive” for a worker, the justices pointed out.

It also barred him “from taking advantage of the relatively inexpensive remedy of a hearing before the Labor Commissioner,” or from seeking punitive damages, statutory penalties, attorney’s fee and other recovery, further tilting the agreement in favor of the employer.

The justices upheld the trial court’s decision not to compel arbitration, and awarded De Melo his costs on appeal.

Arbitration can be an efficient, less expensive alternative to litigation, but as this case demonstrates, the courts are prepared to step in if it is abused.

By Laurie Murphy