In Poublon v. C.H. Robinson Company, the 9th Circuit Court considered the enforceability of a dispute resolution provision that contained some elements of unconscionability. Determining whether a given contract is unconscionable requires an analysis of both procedural and substantive unconscionability on a sliding scale. In other words, an agreement with a high degree of procedural unconscionability requires less evidence of substantive unconscionability in order to deem the whole agreement unenforceable, and vice versa. A given agreement is procedurally unconscionable if it contains elements of oppression or surprise due to unequal bargaining power. An adhesion contract – a standardized contract drafted by a party with superior bargaining power and imposed on a weaker party on a take-it-or-leave-it basis – suggests a degree of procedural unconscionability. However, a whole adhesion contract is not unenforceable unless it contains other elements of oppression or surprise, or there is a high degree of substantive unconscionability. On the other hand, substantive unconscionability is defined by the pervasiveness of terms that are unreasonably favorable to the more powerful party.

Here, the Court held that although the Incentive Bonus Agreement at issue was without question a contract of adhesion, the degree of procedural unconscionability was low because the employer incorporated the arbitration rules by reference and there was no evidence that Plaintiff would be fired for failing to sign the agreement. In contrast, the Court found that the provision allowing the employer, but not employees, to seek equitable relief was substantively unconscionable. Furthermore, the Court found the waiver of representative and class claims to be generally valid, even though the waiver could not be enforced against representative PAGA claims. The Court did not find that the provisions addressing venue, confidentiality, sanctions, unilateral modifications, or discovery limitations to be substantively unconscionable.

When a contract is not permeated by unconscionability, the purpose served by the contract’s impermissible provisions being merely collateral to the main purpose of the contract, a court is within its right to sever the unconscionable provisions and enforce the remaining provisions. Here, the Court severed the provision granting the employer the right to unilaterally seek equitable relief and restricted the class waiver to non-PAGA claims.

This case exemplifies the difficulties future plaintiffs may have in challenging the enforceability of arbitration agreements, which are generally favored by the courts, unless they are bringing a PAGA claim or if the entire agreement is “permeated by unconscionability.”

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