Applying provisional remedies without waiving arbitration

Recently, the California Supreme Court unanimously held that a clause in an arbitration agreement permitting a party to seek preliminary injunctive relief in superior court does not render the agreement unconscionable. The case, Baltazar v. Forever 21 Inc., 2016 DJDAR 2926 (March 28, 2016), provides employers with a precedential decision that an arbitration provision tracking the permissive-provisional-remedy language of Code of Civil Procedure Section 1281.8 is not substantively unconscionable. Thus, the case provides employers more assurance that they may require arbitration as a condition of employment without waiving the right to access courts for provisional remedies.

In Baltazar, the plaintiff filed a civil complaint in superior court alleging nine employment-based causes of action. When Forever 21 moved to compel arbitration, the plaintiff "opposed the motion arguing that the arbitration agreement was unconscionable and therefore unenforceable." While the trial court denied the motion to compel, the Court of Appeal reversed, holding that despite procedural unconscionability (the arbitration agreement was as a contract of adhesion though not one of surprise), the agreement was not substantively unconscionable. The Court of Appeal rejected plaintiff's argument that the provisional-remedy clause is substantively unconscionable because an employer is more likely to seek such relief than its employees. Concluding that the arbitration agreement's provisional-remedy clause "does no more than restate existing law," the Supreme Court affirmed.

The plaintiff argued that the provisional-remedy clause unfairly favors Forever 21 because it is more likely to seek provisional relief than an individual employee. The Supreme Court disagreed. Rejecting that claim, the court noted that even if an employer is more likely to seek provisional remedies than its employees, including such language in an arbitration agreement does not render it substantively unconscionable. The clauses merely recite the parties' statutory rights.

Referring back to the California Arbitration Act, the court noted that the act specifically permits a party to an arbitration agreement to file for specific provisional remedies in court without waiving any rights to arbitration. Indeed, Code of Civil Procedure Section 1281.8 permits a party to an arbitration agreement to file an application for various provisional remedies in court (including preliminary injunctions and temporary restraining orders) without waiving the right to arbitrate.

The statutory language goes back to 1989 when then-State Sen. John Garamendi authored Senate Bill 1394. The Legislative Counsel's Digest for the bill notes that the bill "would authorize a party to an arbitration agreement to seek provisional judicial remedies ... and would provide the party's right to arbitration is not waived if the party also applies for a stay of all other proceedings pending arbitration." The court's decision in Baltazar affirms the noted intent of the legislation permitting a party to apply for provisional relief in court without waiving any right to arbitration.

The court's opinion also provides strong language upholding a clause in the parties' arbitration agreement to protect Forever 21's trade secrets and proprietary and confidential information. The plaintiff argued that a clause providing that in the course of arbitration "all necessary steps will be taken to protect from disclosure [Forever 21's] trade secrets and proprietary and confidential information" was unduly one sided. In language that employers will assuredly cite many times in future briefs, the court noted: "Agreements to protect sensitive information are a regular feature of modern litigation, and they carry with them no inherent unfairness."

Further, the court noted that even if the plaintiff's issue with the trade-secret language was that the arbitration agreement provided explicitly for protections for the employer's trade secrets and proprietary and confidential information and not the plaintiff's confidential information, the provision was unproblematic. Quoting Armendariz v. Foundation Health Psychare Services Inc., 24 Cal. 4th 83 (2000), the court reaffirmed that a party with superior bargaining power may seek extra protections in an arbitration agreement without rendering the agreement unconscionable where it has legitimate commercial need for such protections. In Baltazar, the plaintiff did not contest that the trade-secret-and-proprietary-and-confidential-information clause was based on Forever 21's legitimate commercial need to protect its valuable trade secrets and proprietary and confidential information. Accordingly, the court affirmed employers' abilities to include one-sided provisions of protection (e.g., protection of trade secrets and confidential information) in arbitration agreements when based on legitimate commercial need.

Baltazar affirms that employers are permitted to seek provisional remedies in court without waiving the right to arbitrate where certain conditions are met. In doing so, the case provides employers with guidance on applying for provisional remedies: arbitration is not waived if the employer presents the court an application that the court stay all other proceedings pending the arbitration of any arbitrable issue, question, or dispute. Baltazar also reiterates that the standard for one-sided confidentiality provisions is legitimate commercial need.