Law Firm's Arbitration Agreement Unenforceable

O'Melveny & Myers is a giant and well respected law firm. Its arbitration agreement received no respect from the Ninth Circuit, though. Applying California law, the Ninth Circuit held the agreement failed the test for unconscionability:

- It was a take-it-or-leave-it agreement, even though it was announced three months before its effective date. An "opt out" is not procedurally unconscionable only if it permits "opting out" of the arbitration clause, not opting out of the employment relationship.

- The agreement barred all claims not asserted within a year of their occurrence. The court of appeals held that the shortened statute of limitations was unconscionable. The court distinguished a case where a shortened statute of limitations was held to be lawful - the lawful limitations period was measured as six months from the employee's termination, rather than from when the claim was discovered.

- The agreement contained a broad confidentiality clause, prohibiting disclosure that there was a claim or an arbitration. The court said this was unconscionable because it precluded employees from discovering "repeat players" before the same arbitrators, as well as "precedent" in applying the arbitration agreement.

- The agreement contained a "carve out" permitting the Firm to go to court for injunctive relief to prevent disclosure of attorney client AND other confidential information.

- The agreement precluded administrative proceedings before the U.S. DOL and the California Division of Labor Standards Enforcement, while allowing administrative charges to be filed at the EEOC and California DFEH.

So, it's time to tune up those arbitration agreements again.