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Law Firm’s Arbitration Provision Unconscionable in Wrongful Termination Case

California Appellate Court Reverses Trial Court’s Decision in Discrimination and Wrongful Termination Case

According to court documents, Constance Ramos was an experienced litigator and patent practitioner with a doctorate in biophysics. She was hired as an “Income Partner” at the law firm Winston & Strawn, LLP (Winston). After allegedly being denied recognition for her work, excluded from opportunities for career advancement, evaluated based on the success of her male colleagues, and denied compensation and bonuses to which she was entitled, Ramos sued Winston, asserting various causes of action under state law for discrimination, retaliation, wrongful termination, and anti-fair-pay practices.

Winston moved to compel arbitration pursuant to the partnership agreement Ramos signed shortly after joining the firm. In opposing the motion, Ramos argued she was an “employee” of Winston, not a partner, and therefore Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz) applied to the arbitration agreement. Ramos further argued the arbitration provision in the partnership agreement failed to meet the minimum requirements set forth in Armendariz for arbitration of unwaivable statutory claims.

The trial court disagreed, finding Ramos was “in a partnership relationship” for purposes of the motion to compel. The trial court severed provisions of the arbitration agreement related to venue and cost-sharing, and granted Winston’s motion. Ramos sought a writ of mandate, and we granted review.  wrongful termination california

The appellate panel concluded that the trial court erred in compelling Ramos to submit her claims to arbitration. Under the framework set forth by our Supreme Court in Armendariz, the panel found the parties’ arbitration agreement was unconscionable. Further, the court concluded, “because we cannot remove the taint of illegality by severing the unlawful provisions without altering the nature of the parties’ agreement, we must void the entire agreement to arbitrate. Accordingly, we reverse and remand for Ramos to proceed with her claims in superior court.”

Analysis

Ramos signed a copy of the firm’s partnership agreement when she began work with Winston in 2014. The agreement included a mandatory arbitration clause, which outlined procedures for selection of the arbitration panel, set the venue for arbitration in Chicago and provided that each party would bear its own fees. The arbitration provision also stated that “Except to the extent necessary to enter judgment on any arbitral award, all aspects of the arbitration shall be maintained by the parties and the arbitrators in strict confidence,” and “The panel of arbitrators shall have no authority to add to, detract from or otherwise modify this Agreement nor will the panel of arbitrators have authority to substitute its judgment for, or otherwise override the determinations of, the Partnership, or the Executive Committee or officers authorized to act in its behalf, with respect to any determination made or action committed to by such parties, unless such action or determination violates a provision of this Agreement.”

Ramos alleged she was passed over for cases in favor of less-qualified, less-experienced male attorneys and received multiple salary cuts from 2014 to 2017. She also alleged a lack of support and acknowledgment of her contributions to the firms intellectual property work and her status as the highest-billing income partner in the office in 2016. In 2017, Ramos submitted a letter of resignation and filed suit against the firm.

Appellate Panel

Ultimately, the appellate panel rejected the law firm’s argument that Armendariz is no longer good law after the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, where the justices ruled that the Federal Arbitration Act pre-empted a California rule that class action waivers in arbitration clauses were substantively unconscionable as a matter of law. Since Concepcion was decided, the California Supreme Court has reaffirmed the validity of Armendariz multiple times, the panel noted, and as it remains controlling law, the court is bound by it.

The panel found it unnecessary to resolve whether Ramos was an “employee” or a “partner,” and accordingly whether Armendariz applied at all. According to the panel, even if Ramos was a “partner”, Armendariz applied because the claims Ramos asserted in her lawsuit encompassed unwaivable statutory rights, and the law firm was in a superior bargaining position, with no evidence that Ramos had an opportunity to negotiate the arbitration provision. “Whether or not a finder of fact ultimately agrees with Ramos’ allegation that she was an employee within the meaning of FEHA, the relationship between Winston and Ramos was characterized by a power imbalance analogous to that of an employer-employee relationship,” the court wrote.

“In sum, the arbitration agreement as applied to Ramos’s statutory and wrongful termination claims contains four unconscionable terms,” the court said. “The provision requiring Ramos to pay half the costs of arbitration, pay her own attorney fees, restricting the ability of the panel of arbitrators to ‘override’ or ‘substitute its judgment’ for that of the partnership, and the confidentiality clause, are unconscionable and significantly inhibit Ramos’s ability to pursue her unwaivable statutory claims.”

Having found that the agreement was both substantively and procedurally unconscionable, the panel considered whether severance could remedy the situation. Since the agreement contained more than one unlawful provision, the court found itself unable to strike the problematic provisions without fundamentally altering the parties’ agreement. “Because we are not permitted to cure the deficiencies by reforming or augmenting the contract’s terms, we must void the entire agreement,” the panel wrote, reversing the order granting the motion to compel arbitration and remanding the case to the Superior Court.

California Employment Lawyers

The Ramos case illustrates the complexities of performance evaluations, termination procedures and potential retaliatory and discriminatory practices. If you feel you have been a victim of retaliation, discrimination or wrongful termination, don’t hesitate to contact an experienced wrongful termination lawyer. To discuss these employment laws, or a potential claim on your behalf, feel free to call us toll-free at (888) 500-8469 or click here to contact us via email.

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