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This article has been written by Abhishek Sharma, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

Forever 21, stylized as FOREVER 21, is an American fast fashion retailer headquartered in Los Angeles, California. Forever 21 began as the store called Fashion 21 in Highland Park, Los Angeles, in 1984, and has grown into the clothing lines Forever 21, XXI Forever, Love 21 and Heritage with over 700 stores in the Americas, Asia, the Middle East and the UK. The present case study is a detailed discussion of a married woman named Maribel Baltazar who suffered harm by not reading the employment cum arbitration agreement which forms an important part of the employment. Through this case study, we get to know how an employee must take special care in reading the terms and conditions in the agreement. 

Facts of the case

Plaintiff, Maribel Baltazar, is a married woman who belongs to Mexican ancestry. She started working as an associate in Forever-21 on 13 November. Forever 21 has a clothing Merchandiser. Baltazar has been working as an associate in the company’s distribution center in Los Angeles. In the year 2008, the plaintiff faced racist statements from her manager at work. There had been a tendency of Forever 21 discriminating against Hispanic Associates by paying them less than the Hispanic Associates who were working at the same position. When the plaintiff complained about her disparity, the employers took it lightly and laughed. Also, the Korean people were receiving preferential treatment at the workplace. 

She was also sexually harassed by her superior at work. She faced bodily remarks and commented on her body and personal life. One of her co-workers also made sexual remarks and kept staring at her body. There were numerous other occasions where she was troubled to an extent that she had to complain about this to the management and human resource department. However, she ended up getting no response.  

In the year 2008, the Plaintiff became pregnant and she was directed by her physicist not to lift more than 10 pounds of weight. Physicist also restricted her working conditions. the plaintiff showed the report to her manager that she could not lift more than 10 pounds of weight. But Plaintiff was still required to lift more than 10 pounds of weight. On one fine occasion she fell and injured herself. She was found lifting a bag of clothes exceedingly more than 10 pounds of weight. 

In 2010, the plaintiff complained to the senior human resource manager (Ms. Kim) about the harassment. She told the plaintiff to put her complaints in writing and will be contacted soon. She was contacted by Ms. Paredes who delayed the investigation and came up in May 2010. Nothing became better and she was still sexually harassed. 

The Plaintiff lost all hopes and decided to quit in January 2011. She wrote an e-mail to the human resource department that she was quitting. She was asked to attend a meeting on 28 January, 2011 where 2 supervisory employees from the human resource department will be contacting her. Plaintiff showed up at the meeting. She waited for 20 minutes but no one else entered the room. The plaintiff had no other option but to resign. 

The complaint put by the plaintiff was under the following

  1. Fair Employment and Housing Act (FEHA) (Gov.Code, 12900-12996)
  2. Failure to prevent racial harassment and discrimination
  3. Race Discrimination
  4. Hostile work environmental based on sexual harassment
  5. Failure to prevent sexual harassment
  6. Retaliation

The remaining causes of action allege a violation of the Ralph Civil Rights Act of 1976

On September 8, 2011, filed a motion to compel arbitration of Plaintiff’s claims pursuant to the Federal Arbitration Act. An Arbitration Agreement dated November 13, 2007 was attached to the motion. 

arbitration

Motion to compel arbitration

Plaintiff filed an opposition that the attached agreement was unconscionable. The Plaintiff added that on 13 November 2007, she had an interview at the Forever 21 warehouse in Los Angeles. When she arrived, she was greeted by Mr. Chung who happens to be a Korean man. He handed over the employment application to the Plaintiff. The application consisted of 11 pages titled as “Agreement to Agreement”. Plaintiff was required to sign all the signature lines in the application she signed the agreement. She took the application and spoke to a Korean employee, Mr. Shin. The men spoke in Korean, which the Plaintiff failed to understand. She was under a compulsion to either sign it or no job. 

The Plaintiff had no other option but to sign the agreement.

Trial court

The trial court began the hearing on 7 October, 2011. It denied the motion and stated that the agreement was unconscionable. The Trial Court found that the agreement was substantively unconscionable because:

  1. a) It required the arbitration of the employee but not of the employer claims.
  2. b) It gave Forever 21 the right to protect its trade secrets and other confidential information.
  3. c) It mandated and required arbitration even if the agreement was found unenforceable.

Appeal by defendant

It is to be noted that whether the agreement was unconscionable or not is a matter of law. On appeal, the contract shall be reviewed to find the same. The words are to be interpreted in their ordinary sense, according to the plain meaning a layperson would attach them. 

Decision of the Supreme Court of California

The Supreme Court’s Judgement can be discussed majorly on three points:

Procedural Unconscionability

The plaintiff said that she was under the compulsion to sign the agreement otherwise she wouldn’t get the job and Forever 21 would not hire her. The plaintiff added that the level of unconscionability was very high because the arbitration agreement was governed by the American Agreement Association (AAA) rules, but it did not provide the rules to the arbitration agreement. The question raised by the Plaintiff is to be determined as to whether the employer is required to attach the rules of the arbitration when it has expressly provided institutional arbitration or whether is just sufficient to mention the institutional arbitration by incorporating them by reference is enough to avoid procedural unconscionability. 

The Supreme Court of California stated a very important point that the plaintiff’s position could have been challenged when she had issues with the elements of AAA rules which were incorporated in the agreement and she was unaware of them or failed to understand. Because, however, she challenged the substantive unconscionability of the agreement and not the AAA rules, the failure on the part of the employer not to attach the AAA rules had no impact on the arbitration agreement to the point that the agreement was substantively unconscionable. Therefore, Baltazar’s position could have been impacted if her unconscionability was related to elements of AAA. 

Substantive Unconscionability

Provisional Relief

The Agreement between both the employer and employee permitted Forever 21 to bring in judicial action in order to seek provisional relief (for example temporary restraining order or preliminary injunctive relief) in addition to arbitration. According to Baltazar, such a provision would cause more harm to the employee because the employer is more likely to use this provision for unfair means. The court rejected this contention as well. It is a general principle of law to seek interim injunction. The Supreme Court relied upon California Code of Civil Procedure, Section 1281.8(b), which expressly allows the parties where they can seek interim injunction relief during the pendency of an arbitration agreement. Since, it is given in the statute and provides for provisional relief, therefore the court held that it was not substantively unconscionable. Therefore, its is a right available to the parties under the code.

One-Sided: Only Employee’s Claims Listed

Baltazar tried to bring in the point that the agreement consisted of the phrase “include but are not limited to” claims for wages, discrimination, harassment, contract breaches, and others. Baltazar, therefore argued that the defendant had provided this clause unfairly and it was one-sided as it had only listed certain specific claims that could be brought by the employees. There are many other situations that can be brought by the employees which go undefined in the provision and are subject to arbitration. It becomes difficult for the employees to challenge them. 

It is very interesting to note that the Supreme Court again favoured Forever 21. According to the court, the provision covered all the basic claims and it also states that an employee can also bring in the claims which an employer may bring. The court stated that these are just examples of the claims that can be brought and do not render the agreement unfair to make its enforcement unconscionable.

One-Sided: Trade Secrets Provision

The next provision that Baltazar challenged was provision regarding trade secrets. The agreement contained that all necessary steps shall be taken to protect the trade secrets and employees shall take all the reasonable steps to protect the confidential information. Baltazar said that I should be defined as to what are those necessary steps to protect the confidential information. Baltazar further stated that the defendant unfairly demands that employees protect the trade secrets which makes the agreement one-sided. It makes the agreement unduly one-sided. 

No matter what, the court once again disagreed. Nothing in the agreement unduly demands the employees to do any special act to protect the trade secrets. It only demands that employees take special care and attention to not to disclose the trade secrets. It is a usual provision which every employer would ask for. Agreements to protect trade and confidential secrets are a regular feature of modern litigation. They do not carry any inherent unfairness and do not make the agreement unenforceable. 

Thus, at the end, the Supreme Court of California concluded that the arbitration agreement was not unconscionable and was enforceable. 

Conclusion

This judgement provides a very important guideline for employer and employee seeking to enter into an arbitration agreement, but have concerns about potentially waving their rights to seek provisional relief in court. Even narrowly drafted arbitration agreements may be enforceable. There has been a line of situations where employees have suffered harm for not reading the employment agreements carefully. It is advised to read the terms and conditions of the agreement to avoid any complications. However, the Supreme Court of California has shown that every agreement shall be scrutinized on the basis of law and general principles of law. 

References

  1. Stanford Law School, Baltazar V. Forever 21, Inc, available at https://scocal.stanford.edu/opinion/baltazar-v-forever-21-inc-34467, Last Visited 21 June 2021
  2. Casemine, Baltazar V. Forever 21, available at https://www.casemine.com/judgement/us/5914f65badd7b0493498f7fc, Last Visited 24 June, 2021
  3. JDSUPRA, Baltazar V. Forever 21, available at https://www.jdsupra.com/legalnews/california-supreme-court-issues-pro-71697/, Last Visited 26 June, 2021

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