Court Strikes Binding Arbitration Due to Lack of Mutuality

By Robyn Hagan Cain on January 06, 2012 | Last updated on March 21, 2019

In hindsight, mutuality of obligation seems quaint. Probably because it's one the first concepts we learned in contract law. (Mutuality is to law school what "Twinkle, Twinkle Little Star" is to piano lessons.)

But according to California's Third Appellate District, mutuality still matters in employment agreements.

In Wisdom v. AccentCare, a California staffing agency included a clause in its employment application that stated, if hired, all disputes between the employee and the agency must be submitted to binding arbitration. In exchange for an employee's agreement to arbitrate, the employee received assurances that the agency with agree to submit claims and disputes against the employee to arbitration.

Several of AccentCare's employees developed a beef with the company, and later tried to sue. AccentCare responded with a motion to compel arbitration of the claims.

The trial court denied AccentCare's motion, finding that the agreement was procedurally and substantively unconscionable because:

  • AccentCare did not inform plaintiffs that signing the agreement was optional, and the heading of the agreement indicated that signing was mandatory
  • There was unequal bargaining power between the parties and no possibility for the applicant to negotiate a meaningful choice
  • The arbitration agreement was located in the middle of five uniform, single-spaced paragraphs, and was not distinguished in any manner
  • Defendants did not explain the meaning of the agreement to plaintiffs
  • Plaintiffs did not know what binding arbitration meant.

The Third Appellate District affirmed the trial court's decision. Because in the employment application arbitration language did not create mutual obligations, and the circumstances surrounding the execution of the agreement were procedurally unconscionable, the binding arbitration agreement was unenforceable.

If you represent business owners in employment law issues, make sure your clients understand the need for mutuality of obligation before they end up holding void agreements in a California courtroom.

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