Arbitration Agreement Contained in Employee Handbook and Signed During Pending Class Action Is Invalid

On April 20, 2018, the California Court of Appeal, in the case Nguyen v. Inter-Coast International Training, Inc., held that an arbitration agreement contained in an employee handbook was both procedurally and substantively unconscionable. In that case, after a wage and hour class action was filed and certified against the employer, the employer modified its employee handbook which included the arbitration agreement. The employer then sought to move to compel arbitration of all class members who signed the updated handbook. The trial court denied the employer’s motion and the Court of Appeal affirmed, finding: (1) the arbitration agreement was procedurally unconscionable based on the fact that the agreement was part of an 11 page employee handbook, with no style elements differentiating the arbitration provision from the other unrelated provisions in the handbook; and (2) the arbitration agreement was substantively unconscionable because nothing in the agreement or the manner in which it was provided to employees informed them that by signing the agreement they were giving up their right to participate in the pending class action.

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