Armendariz v. Foundation Health Psychcare Services, Inc.

Procedural History

– Trial court declared that it was unconscionable “given overall fairness of the provision invalidated the entire agreement.”
– Appellate court reversed as to severability clause, but the damages provision was unconscionable and contrary to public policy, the rest of the agreement was enforceable…
– Employer appealed….


– Employees signed a contract which provided an arbitration clause due to any “firings” while they worked there would be arbitrated outside of court…employees were fired, but claimed they were fired due sexually based harassment and discrimination…..sued for these violations, the employers sought for arbitration…
– Plaintiff
o Some of the provisions were unconscionable terms and rendered the whole arbitration agreement un-enforceable…
o It requires employees to arbitrate their wrongful claims against the employer, but does not require the employer to arbitrate claims it may have against the employees…Lacked mutuality of arbitration provision!!!
– Supreme Courts Reasoning
o Clearly and adhesive contract – imposed on the employees with a take it or leave it clause…
o Arbitration must be voluntary – it must resolve disputes with speed/economy and fairness.
– Defendant
o Wording of the agreement resulted from the position of the employees w/in the organization which made an employment suit unlikely against the employer.
 The fact that an employee may not bring suit is not a stipulation for justification of a unilateral arbitration agreement…


– ¬Is the adhesion arbitrational contract binding?


– Advantage for employee to litigate in the courts cause it would be fairer.
– ***If an employer has reasonable justification for arbitration – it cannot be grounded in something other than the employer’s desire to maximize its advantage based upon perceived superiority of judicial forum***
– Limited in scope to employee claims, and not employer claims.


– In order for a contract to be deemed un-enforceable based upon unconscionability, it must have both procedural and substantive issues present..
– An arbitration agreement imposed in an adhesive context lacks fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.

Courts Reasoning

– Arbitration agreements can be upheld if used legit arbitration procedures..
o 1 – neutrality of the arbitrator 2 – provision of adequate discovery 3 – written decision for judicial review 4 – limitations on cost for arbitration
– Enforcement of adhesion contracts
o Falls w/in reasonable expectations of the weaker “adhering” party.
o In consideration of context if denied enforcement unduly oppressive or unconscionable….
o Procedure element
 Oppression or surprise (lack the capacity to negotiate the contract, or unequal bargaining power of one side).
o Substantive
 Overly harsh or one-sided..
– Mutuality
o Needs reasonable justification to have a one-sided arbitration clause that doesn’t hold the company liable to certain clauses.
 Lack of two sided agreement is not illusory (lacking mutual consideration) it is actually Unconscionable.


– Reversed in favor of the employees and there was no abuse by the trial courts discretion.

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