"Unconscionable" to Provide Arbitration Agreement to Dancers While "Mostly Naked"

Not surprisingly, a court has found that employers should probably not present (and potentially force execution of) important legal documents to employees while they are mostly naked.  This shouldn't be too much of a stretch for most employers, but the reasoning behind the court's ultimate decision could have more far-reaching implications for all employers.

In Roe v. SFBSC Management, LLC, No. 14-03616 (N.D. Cal. March 2, 2015), exotic dancers in California filed a lawsuit alleging various wage and hour claims under federal and California law. Defendant SFBSC Management, LLC, the employer, moved to enforce the arbitration clause in the employment contracts. Magistrate Judge Beeler of the U.S. District Court for the Northern District of California found sufficient procedural and substantive unconscionability to find the agreements unenforceable.

In evaluating the procedural component of the agreement and in order to determine whether the agreement was enforceable, the court found "unequal bargaining power," and that the dancers had no "real" chance to negotiate and had no "meaningful choice" but to sign. She noted the dancers were presented the contracts while "mostly naked" and that they were rushed to sign the agreement. The dancers were denied the opportunity to review or take the agreement home before signing, allegedly.

From a substantive standpoint, the court also found unconscionability in the terms of the agreement. First, the agreement contained a one-way ban on collective actions. The dancers were not allowed to arbitrate claims collectively, but the club owners were permitted to consolidate claims. Because of the clause was unilateral, without reasonable justification, it was deemed unconscionable. Additionally, the court found cost-shifting and cost-sharing clauses of the agreement unconscionable under existing case law.

Having found unconscionability in both the procedural and substantive components, the court considered whether to simply strike the unconscionable provisions, or to find the entire agreement unenforceable. Given the multiple defects in the agreement, the court ultimately concluded that the offending provisions should not be stricken and instead, the entire agreement should be rendered unenforceable.

The lesson? Not only must arbitration agreements contain mutual provisions which are compliant with current state and federal law, but must also be fairly presented to employees, who then must be afforded the opportunity to review, consider, question, and negotiate the terms of the agreement. Failure to undertake these important steps could render an otherwise beneficial arbitration agreement entirely void and unusable.

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