Supreme Court Case Study: Armendariz v. Foundation Health Psychcare

This case study analyzes the Supreme Court of California case, Armendariz v. Foundation Health Psychcare Services, Inc., concerning the validity of mandatory employment arbitration agreements. The case involves employees who sued their employer for wrongful termination, alleging discrimination under the California Fair Employment and Housing Act (FEHA). The employer sought to compel arbitration based on pre-employment agreements. The court addressed whether FEHA claims are arbitrable and under what conditions, concluding that arbitration is permissible if it allows employees to vindicate their statutory rights. The court found the arbitration agreement unenforceable due to unconscionable provisions, particularly a damages limitation and lack of mutuality. The decision established key requirements for enforceable arbitration agreements in employment disputes, including neutrality of the arbitrator, adequate discovery, a written decision, and limitations on costs, significantly impacting employment law and the enforceability of arbitration clauses. The Court of Appeal's judgment was reversed, reinforcing the importance of fair arbitration processes.

Armendariz v. Foundation Health Psychcare Services, Inc.
Supreme Court of California
August 24, 2000, Decided
No. S075942.
Reporter
24 Cal. 4th 83; 6 P.3d 669; 99 Cal. Rptr. 2d 745; 2000 Cal. LEXIS 6120; 83 Fair Empl. Prac. Cas. (BNA) 1172; 78 Empl. Prac. Dec. (CCH)
P40,202; 2000 Cal. Daily Op. Service 7127; 2000 Daily Journal DAR 9401
MARYBETH ARMENDARIZ et al., Plaintiffs and Respondents, v. FOUNDATION HEALTH PSYCHCARE SERVICES,
INC., Defendant and Appellant.
Prior History: Superior Court of Marin County. Super. Ct. No. 170420. Lynn Duryee, Judge. *
Court of Appeals of California, First Appellate District, Division One. No. A080224.
Disposition: The judgment of the Court of Appeal upholding the employer's petition to compel arbitration is reversed, and the
cause is remanded to the Court of Appeal with directions to affirm the judgment of the trial court.
Case Summary
Procedural Posture
Plaintiff employees appealed a judgment of the Court of Appeals of California, First Appellate District, Division One,
permitting defendant employer's petition to compel arbitration and enforcing an arbitration agreement minus one provision
found unconscionable. Plaintiffs sued for wrongful termination and defendant petitioned to compel arbitration because
plaintiffs signed a mandatory arbitration agreement before beginning employment.
Overview
Plaintiff employees sued defendant employer. Plaintiffs alleged violations of the California Fair Employment and Housing Act,
Cal. Gov. Code § 12900 et seq. Plaintiffs alleged they were terminated because of their perceived heterosexual orientation.
Defendant petitioned to compel arbitration, since both plaintiffs had signed pre-employment application forms containing
mandatory arbitration clauses. The clauses expressly limited damages, and did not mandate adequate discovery, a process for
limited judicial review, or limitations on cost. The trial court held the entire agreement unenforceable. The intermediate
appellate court reversed and held the limitation on damages was unconscionable, but said the remainder was enforceable.
Plaintiffs appealed. The court reversed. The court held the claims were arbitrable if arbitration permitted vindication of
plaintiffs' statutory rights. The court further held the arbitration agreement involved was unenforceable because the agreement
contained so many unconscionable provisions that it was not possible to make the agreement enforceable by severing the
offending provisions.
Outcome
The court reversed the judgment of the intermediate appellate court.
Counsel: Pillsbury Madison & Sutro, William Gaus, Craig E. Stewart, Alice Kwong Ma Hayashi and Emily E. Flynn for
Defendant and Appellant.
** Judge of the former Municipal Court for the Marin Judicial District, assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

Page 2 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
Paul, Hastings, Janofsky & Walker, Paul W. Cane, Jr., Leslie L. Abbott and Kristen L. McMichael for California Employment
Law Council as Amicus Curiae on behalf of Defendant and Appellant.
Jones, Day, Reavis & Pogue, William J. Emanuel, Harry I. Johnson III, Holger G. Besch; Law Offices of Steven Drapkin and
Steven Drapkin for Employers Group as Amicus Curiae on behalf of Defendant and Appellant.
Miller, Clark, Calvert & Raimondi, Glenn M. Clark, Allan C. Miller; Altshuler, Berzon, Nussbaum, Berzon & Rubin, Michael
Rubin and Indira Talwani for Plaintiffs and Respondents.
McGuinn, Hillsman & Palefsky, Cliff Palefsky and Keith Ehrman for California Employment Lawyers Association as Amicus
Curiae on behalf of Plaintiffs and Respondents.
Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Louis Verdugo, Jr, Assistant Attorney
General, and Kathleen W. Mikkelson, Deputy Attorney General, for the State of California as Amicus Curiae on behalf of
Plaintiffs and Respondents.
The Sturdevant Law Firm and James C. Sturdevant for Consumer Attorneys of California as Amicus Curiae on behalf of
Plaintiffs and Respondents.
Judges: Opinion by Mosk, J., with George, C. J., Kennard, Baxter, and Werdegar, JJ., concurring. Concurring opinion by
Brown, J., with Chin, J., concurring (see p. 127).
Opinion by: MOSK
Opinion
[*90] [**674] [***750] MOSK, J.
In this case, we consider a number of issues related to the validity of a mandatory employment arbitration agreement, i.e., an
agreement by an employee to arbitrate wrongful termination or employment discrimination claims rather than filing suit in
court, which an employer imposes on a prospective or current employee as a condition of employment. The employees in this
case claim that employees may not be compelled to arbitrate antidiscrimination claims brought under the California Fair
Employment and Housing Act (FEHA) ( Gov. Code, § 12900 et seq.) We conclude that such claims are in fact arbitrable if the
arbitration permits an employee to vindicate his or her statutory rights. As explained, in order for [*91] such vindication to
occur, the arbitration must meet certain minimum requirements, including neutrality of the arbitrator, the provision of adequate
discovery, a written decision that will permit a limited form of judicial review, and limitations on the costs of arbitration.
The employees further claim that several provisions of the arbitration agreement are unconscionable, both because they fail to
meet these minimum requirements and because the arbitration agreement is not bilateral. We conclude that the agreement
possesses a damages limitation that is contrary to public policy, and that it is unconscionably unilateral.
[***751] Finally, the employees contend that the presence of these unconscionable provisions renders the entire arbitration
agreement unenforceable. The employer argues that even if some of the provisions are unconscionable or contrary to public
policy, the proper remedy is to strike or restrict those clauses pursuant to Civil Code section 1670.5, and to enforce the rest of
the arbitration agreement. The trial court chose the employees' preferred solution of refusing to enforce the arbitration
agreement, but the Court of Appeal sided with the employer and enforced the agreement minus the one provision it found
unconscionable. We conclude, for reasons explained below, that the arbitration agreement is unenforceable and that therefore
the Court of Appeal's judgment must be reversed.
I. STATEMENT OF FACTS AND PROCEDURAL ISSUES
Marybeth Armendariz and Dolores Olague-Rodgers (hereafter the employees) filed a complaint for wrongful termination
against their former employer, Foundation Health Psychcare Services, Inc. (hereafter the employer). The complaint and certain

Page 3 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
documents filed in support of the employer's petition to compel arbitration provide us with the basic factual background of this
case. In July and August of 1995, the employer hired the employees in the "Provider Relations Group" and they were later
given supervisory positions with annual salaries of $ 38,000. [**675] On June 20, 1996, they were informed that their positions
were being eliminated and that they were being terminated. During their year of employment, they claim that their supervisors
and coworkers engaged in sexually based harassment and discrimination. The employees alleged that they were "terminated . . .
because of their perceived and/or actual sexual orientation (heterosexual)."
Both employees had filled out and signed employment application forms, which included an arbitration clause pertaining to any
future claim of wrongful termination. Later, they executed a separate employment arbitration agreement, containing the same
arbitration clause. The clause states in [*92] full: "I agree as a condition of my employment, that in the event my employment
is terminated, and I contend that such termination was wrongful or otherwise in violation of the conditions of employment or
was in violation of any express or implied condition, term or covenant of employment, whether founded in fact or in law,
including but not limited to the covenant of good faith and fair dealing, or otherwise in violation of any of my rights, I and
Employer agree to submit any such matter to binding arbitration pursuant to the provisions of title 9 of Part III of the California
Code of Civil Procedure, commencing at section 1280 et seq. or any successor or replacement statutes. I and Employer further
expressly agree that in any such arbitration, my exclusive remedies for violation of the terms, conditions or covenants of
employment shall be limited to a sum equal to the wages I would have earned from the date of any discharge until the date of
the arbitration award. I understand that I shall not be entitled to any other remedy, at law or in equity, including but not limited
to reinstatement and/or injunctive relief."
The employees' complaint against the employer alleges a cause of action for violation of the FEHA 1 and three additional
causes of action for wrongful termination based on tort and contract theories of recovery. The complaint sought general
damages, punitive damages, injunctive relief, and the recovery of attorney fees and costs of suit.
The employer countered by filing a motion for an order to compel arbitration pursuant to Code of Civil Procedure section
1281.2. The parties submitted declarations in support of, and in opposition to, the motion. Relying on Stirlen v. Supercuts, Inc.
(1997) 51 Cal. App. 4th 1519 [60 [***752] Cal. Rptr. 2d 138], the trial court denied the motion on the ground that the
arbitration provision in question was an unconscionable contract. The trial court first found that the arbitration agreement was
an "adhesion contract." It also found that several of the provisions of the contract are "so one-sided as to 'shock the conscience.'
" In particular, it singled out the fact that only employees who file claims against an employer are required to arbitrate their
claims, but not vice versa. Second, the agreement limits damages to backpay, precluding damages available for statutory
antidiscrimination claims and tort damages, such as punitive damages. The trial court also mentioned the supposed lack of
discovery under the arbitration agreement. It concluded: "Given the overall unfairness of the provision," this was not an
appropriate case for striking the unlawful provisions of the arbitration agreement; instead it invalidated the entire agreement.
[*93] After the employer filed a timely appeal, the Court of Appeal reversed. The court concluded that the contract was indeed
one of adhesion and that the damages provision was unconscionable and contrary to public policy. But for reasons elaborated
below, the Court of Appeal held, contrary to the trial court, that the rest of the arbitration agreement should be enforced. It also
determined that because the agreement incorporated the California Arbitration Act (CAA), adequate discovery, pursuant to
Code of Civil Procedure section 1283.05, was available.
We granted review.
II. DISCUSSION
A. Arbitrability of FEHA Claims
(1) The employees urge us to adopt the conclusion of the United States Court of [**676] Appeals for the Ninth Circuit in
Duffield v. Robertson Stephens & Co. (9th Cir. 1998) 144 F.3d 1182 (Duffield), which held that the Civil Rights Act of 1991
(Pub.L. No. 102-166 (Nov. 21, 1991) 105 Stat. 1071, hereafter sometimes the 1991 Act) prohibits the enforcement of
11 Same-sex harassment has been held to be unlawful under the FEHA. ( Mogilefsky v. Superior Court (1993) 20 Cal. App. 4th 1409, 1418
[26 Cal. Rptr. 2d 116].)

Page 4 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
mandatory employment agreements to arbitrate claims under title VII of the Civil Rights Act of 1964 (Title VII) or equivalent
state antidiscrimination statutes, such as the FEHA. Duffield involved a securities broker who sought to litigate Title VII and
FEHA claims against her employer after alleged sexual discrimination and harassment, and who was subject to a mandatory
arbitration agreement. The starting point for the Duffield court is the fact that the 1991 Act "was primarily designed to 'overrule'
hostile Supreme Court decisions in order to make discrimination claims easier both to bring and to prove in federal courts . . . ."
(Duffield, supra, 144 F.3d at p. 1189.) It is against this background that the court examined section 118 of the 1991 Act, which
provides: "Where appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including .
. . arbitration, is encouraged to resolve disputes arising under the Acts or provisions of Federal law amended by this title."
(Pub.L. No. 102-166, § 118, reprinted in notes foll. 42 U.S.C. § 1981.) The Duffield court found the language "[w]here
appropriate and to the extent authorized by law" to be indicative of a congressional intent to outlaw compulsory arbitration of
employee civil rights claims, despite the apparently proarbitration thrust of section 118. ( Duffield, supra, 114 F.3d at p. 1195.)
The court reasoned as follows: The term "[w]here appropriate," must be considered in the context of the statute as a whole,
which provided "for a vast strengthening of employees' rights" (Id. at p. 1191); " 'Where appropriate,' as used in the Act, would
appear to [*94] mean where arbitration furthers the purpose and objective of the Act--by affording victims of discrimination an
opportunity to present their claims in an alternative forum, a forum that they find desirable--not by forcing an unwanted forum
upon them." (Id. at p. 1194, italics omitted.)
Likewise, the Duffield court explained the phrase "to the extent authorized by law" IN CONTEXT: "As the Supreme Court has
stated, we should 'examine initially' [***753] the statute 'with an eye toward determining Congress' perception of the law that it
was shaping or reshaping.' [Citation.] The overwhelming weight of the law at the time Congress drafted [section] 118, and it
was reported out of the House Education and Labor Committee, was to the effect that compulsory agreements to arbitrate Title
VII claims were unenforceable. In other words, such agreements were not 'authorized by law.' To the contrary, the law at that
time prohibited employers from compelling employees to arbitrate Title VII claims pursuant to collective bargaining
agreements, 'in large part' because of the Court's recognition of the critical role that Congress envisioned for the independent
federal judiciary in advancing Title VII's societal goal. (See McDonald [v. West Branch (1984)] 466 U.S. [284,] 289, 104 S. Ct.
1799[, 1802-1803]; [Alexander v. ] Gardner-Denver [Co.] [(1974)] 415 U.S. [36,] 56, 94 S. Ct. 1011[, 1023-1024]." 2
(Duffield, supra, 144 F.3d at p. 1194, italics omitted.) This reading of the statute is especially supported by the legislative
history, particularly the report of the House Committee on Education and Labor (the House report), which stated of the bill that
was to become the 1991 Act: " 'The Committee emphasizes . . . that the use of alternative dispute mechanisms is . . . [**677]
intended to supplement, not supplant, the remedies provided by Title VII. Thus, for example, the committee believes that any
agreement to submit disputed issues to arbitration, whether in the context of collective bargaining or in an employment
contract, does not preclude the affected person from seeking relief under the enforcement provisions of Title VII. This view is
consistent with the Supreme Court's interpretation of Title VII in Alexander v. Gardner-Denver Co. . . . The Committee does
not intend this section to be used [*95] to preclude rights and remedies that would otherwise be available.' H.R.Rep. No. 40(I)
at 97." (Duffield, supra, 144 F.3d at p. 1195, italics added by the Duffield court.)
Finally, the Duffield court reasoned that if the 1991 Act precluded the enforcement of mandatory employment arbitration
agreements with respect to Title VII claims, the employee's FEHA claims must also be exempted from mandatory arbitration.
Because " '[p]arallel state anti-discrimination laws are explicitly made part of Title VII's enforcement scheme,' FEHA claims
are arbitrable to the same extent as Title VII claims." (Duffield, supra, 144 F.3d at p. 1187, fn. 3.) In support of this
proposition, the Duffield court cited Kremer v. Chemical Construction Corp. (1982) 456 U.S. 461, 477-478 [102 S. Ct. 1883,
1894-1895, 72 L. Ed. 2d 262], which held that because state antidiscrimination laws were intended by Congress to be part of
22 Alexander v. Gardner-Denver Co., supra, 415 U.S. 36 (Gardner-Denver), to which the Duffield court referred, was summarized thus by
the United States Supreme Court: "In Gardner-Denver, the issue was whether a discharged employee whose grievance had been arbitrated
pursuant to an arbitration clause in a collective-bargaining agreement was precluded from subsequently bringing a Title VII action based
upon the conduct that was the subject of the grievance. In holding that the employee was not foreclosed from bringing [a] Title VII claim, we
stressed that an employee's contractual rights under a collective-bargaining agreement are distinct from the employee's statutory Title VII
rights." ( Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 33-34 [111 S. Ct. 1647, 1656, 114 L. Ed. 2d 26] (Gilmer).) McDonald
v. West Branch, supra, 466 U.S. 284, involved a similar statutory claim submitted to arbitration pursuant to a collective bargaining
agreement, with a similar holding.

Page 5 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
the federal antidiscrimination enforcement scheme, a judgment under New York's anti-employment-discrimination statute
precludes parties from relitigating the same issues in a Title VII action.
As the employer points out, the Ninth Circuit stands alone in its interpretation of the 1991 Act. (See Rosenberg v. Merrill
Lynch, Pierce, Fenner & Smith (1st Cir. 1999) 170 F.3d 1, 10 [specifically considering and rejecting Duffield's analysis]; Seus
v. John Nuveen & Co., Inc. (3d Cir. 1998) 146 F.3d 175, 183 (Seus) [same]; [***754] Koveleskie v. SBC Capital Markets, Inc.
(7th Cir. 1999) 167 F.3d 361, 365 [same].)
Aside from the fact that Duffield is a minority of one, we find its reasoning unpersuasive. First and foremost, it is difficult to
believe that Congress would have chosen to ban mandatory employment arbitration by means of a clause that encourages the
use of arbitration and has no explicit prohibitory language, when it could have simply and straightforwardly proscribed
mandatory employment arbitration of Title VII claims. Second, the Duffield court's analysis of the phrase "to the extent
authorized by law" would perhaps be credible but for the fact that, as the court acknowledged ( Duffield, supra, 144 F.3d at p.
1189), the United States Supreme Court decided Gilmer, supra, 500 U.S. 20, shortly before the passage of the 1991 Act. Gilmer
modified the Gardner-Denver decision referred to in the congressional legislative history quoted above. Gilmer held that an
Age Discrimination in Employment Act (ADEA) claim was arbitrable under a preemployment arbitration agreement between
the plaintiff, a securities broker, and the New York Stock Exchange, with which he was required by his employer to register.
The Gilmer court, in distinguishing its decision from the Gardner-Denver line of cases, did not rely on the fact that the latter
was a Title VII [*96] case. Rather, the court emphasized that Gardner-Denver and its progeny were collective bargaining
cases, and that there was "[a]n important concern [for] the tension between collective representation and individual statutory
rights" that was not present outside the collective bargaining context. (Gilmer, supra, 500 U.S. at p. 35 [111 S. Ct. at p. 1657].)
The court also noted that the scope of the collective bargaining agreements in the Gardner-Denver line of cases did not seem to
encompass the arbitration of statutory claims, and that those cases "were not decided under the [Federal Arbitration Act], which
. . . reflects a 'liberal federal policy favoring arbitration agreements.' " (Ibid.)
The Gilmer court did not decide whether employment contracts are generally subject to the Federal Arbitration Act, as
explained below, nor did it definitively rule on whether Title VII claims were arbitrable. But at the very least, it was not at all
clear at the time the 1991 Act was enacted that mandatory arbitration of Title VII claims (outside of the collective bargaining
[**678] context) was prohibited according to judicial interpretation of Title VII, and in fact the contrary appeared to be more
likely the case. The fact that the authors of the House report may have believed that section 118 of the 1991 Act was intended
to incorporate a broad reading of the Gardner-Denver line of cases to preclude mandatory employment arbitration agreements
of all types does not negate the fact that at the time Congress passed the 1991 Act, Gilmer was the law. Congress must be
presumed to have been aware of Gilmer when it used the phrase "to the extent authorized by law."
Nor can the phrase "[w]here appropriate" bear the weight given to it by the Duffield court. There is no reason to suppose that
Congress believed mandatory arbitration agreements of civil rights claims to be inappropriate, provided that arbitration gives
claimants the full opportunity to pursue such claims. Although the Gilmer court acknowledged that federal statutes may
provide exceptions to the rule of arbitrability found in the FAA, it held that " 'questions of arbitrability must be addressed with
a healthy regard for the federal policy favoring arbitration.' " ( Gilmer, supra, 500 U.S. at p. 26 [111 S. Ct. at p. 1652].) We
cannot discern in the general phrase "[w]here appropriate and to the extent authorized by law" a specific congressional intent to
ban mandatory employment arbitration agreements.
We therefore conclude that nothing in the 1991 Act prohibits mandatory employment arbitration agreements that encompass
state and federal antidiscrimination claims.
[***755] B. The Applicability of the FAA and the CAA
(2) The Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) incorporates a strong federal policy of enforcing arbitration
agreements, including [*97] agreements to arbitrate statutory rights. (See Broughton v. Cigna Healthplans (1999) 21 Cal. 4th
1066, 1074-1075 [90 Cal. Rptr. 2d 334, 988 P.2d 67] (Broughton), and cases cited therein.) (3a) The employees claim,
however, that employment contracts are not subject to the FAA. Their position is based on a reading of section 1 of the FAA,
which, in defining the term "commerce," provides that "nothing herein shall apply to contracts of employment of seamen,
railroad employees, or any other class of workers engaged in foreign or interstate commerce." (9 U.S.C. § 1.) The employees

Page 6 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
contend that the language "engaged in foreign or interstate commerce" was intended to apply to all employees within the reach
of the FAA. That is, section 1 effectively excludes all employment contracts because employees not engaged in interstate
commerce would be beyond the legislative power of Congress and therefore beyond the FAA. This is essentially the position of
the Ninth Circuit in Craft v. Campbell Soup Co. (9th Cir. 1998) 161 F.3d 1199. The Craft court, after reviewing the legislative
history of section 1 of the FAA, and the academic literature, rejected the position of the majority of courts that the phrase
"engaged in foreign or interstate commerce" signifies only those directly engaged in interstate commerce, such as workers
involved in the transportation industry. ( Craft, supra, 161 F.3d at pp. 1202-1205; see also Finkin, "Workers' Contracts"
UNDER THE UNITED STATES ARBITRATION ACT: An Essay in Historical Clarification (1996) 17 Berkeley J. Emp. & Lab.
L. 282.) Several courts have since disagreed with Craft and sided with what continues to be the majority rule. (See Koveleskie
v. SBC Capital Markets, Inc., supra, 167 F.3d at pp. 363-364, and cases cited therein.) 3
Whether the FAA applies to employment contracts presents a substantial question, but one we need not decide here. California
law, like federal law, favors enforcement of valid arbitration agreements. (Broughton, supra, 21 Cal. 4th at p. 1074.) As we
have [**679] observed: "Two years after the FAA was enacted, this state adopted its first modern arbitration statute (Stats.
1927, ch. 225), declaring arbitration agreements to be irrevocable and enforceable in terms identical to those used in section 2
of the federal act, and since that time California courts and its Legislature have 'consistently reflected a friendly policy toward
the arbitration process.' [Citation.] That policy was expanded and clarified in the current arbitration statute which was adopted
[*98] in 1961 (Stats. 1961, ch. 461, § 2 et seq.), and it continues to be the policy of this state." ( Keating v. Superior Court
(1982) 31 Cal. 3d 584, 601-602 [183 Cal. Rptr. 360, 645 P.2d 1192], disapproved on other grounds sub nom. Southland Corp.
v. Keating (1984) 465 U.S. 1 [104 S. Ct. 852, 79 L. Ed. 2d 1].) Thus, under both federal and California law, arbitration
agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation 4 of
any contract. (9 U.S.C. § 2; see also, Code Civ. Proc., § 1281.) In other words, under California [***756] law, as under federal
law, an arbitration agreement may only be invalidated for the same reasons as other contracts. Moreover, the CAA, unlike the
FAA, contains no exemption for employment contracts. 5 Indeed, Code of Civil Procedure section 1280, subdivision (a),
defines the term "agreement," for purposes of the CAA, as including "agreements between employers and employees or
between their respective representatives."
There is, of course, one major difference between the FAA and the CAA. The former generally preempts state legislation that
would restrict the enforcement of arbitration agreements (see Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687-
688 [116 S. Ct. 1652, 1656-1657, 134 L. Ed. 2d 902]), while the CAA obviously does not prevent our Legislature from
selectively prohibiting arbitration in certain areas. But the statute in question in this case, the FEHA, contains no such
prohibition. "The unsuitability of a statutory claim for arbitration turns on [legislative] intent, which can be discovered in the
text of the statute in question, its legislative history or in an ' "inherent conflict" between arbitration and the [statute's]
underlying purposes.' " (Broughton, supra, 21 Cal. 4th at p. 1075, first bracketed text added, quoting Gilmer, supra, 500 U.S. at
p. 26 [111 S. Ct. at p. 1652].) We find nothing in the language or the legislative history of the FEHA that suggests it was
intended to prohibit arbitration, and the employees cite us to none. To be sure, the FEHA provides critically important
protections against discrimination. But the imperative to enforce such protections does not, as a general matter, inherently
conflict with arbitration. (4) Assuming an adequate arbitral forum, we agree with the Supreme Court that "[b]y agreeing to
33 Gilmer did not address the issue of the applicability of the FAA to employment contracts, instead finding that Gilmer's arbitration
agreement was not contained in an employment contract but in his security broker's registration application with the New York Stock
Exchange, which falls outside the literal terms of section 1 of the FAA. (Gilmer, supra, 500 U.S. at p. 25, fn. 2 [111 S. Ct. at pp. 1651-1652].)
We note that the United States Supreme Court has recently granted a writ of certiorari in Circuit City Stores, Inc. v. Adams (9th Cir. 2000)
194 F.3d 1070, certiorari granted May 22, 2000, 529 U.S. 1129 [120 S. Ct. 2004, 146 L. Ed. 2d 955], apparently to address this question.
44 "As has been pointed out, the 'revocation of a contract' . . . is something of a misnomer. 'Offers are "revoked." . . . Contracts are
extinguished by rescission.' " ( Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal. 4th 951, 973 [64 Cal. Rptr. 2d 843, 938 P.2d 903]
(Engalla).) We will refer throughout to the "rescission" or, simply, the "voiding" of an arbitration agreement.
55 Former Code of Civil Procedure section 1280 contained a provision exempting contracts pertaining to labor (Stats. 1927, ch. 225, § 1, p.
404), but this exemption was interpreted narrowly by courts and was omitted, pursuant to the California Law Revision Commission's
recommendation, from the 1961 statute. (See Recommendation and Study Relating to Arbitration (Dec. 1960) 3 Cal. Law Revision Com.
Rep. (1961) pp. G-32 to G-34.)

Page 7 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
arbitrate a statutory claim, a party does not forgo the substantive rights [*99] afforded by the statute; it only submits to their
resolution in an arbitral, rather than a judicial, forum." ( Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614,
628 [105 S. Ct. 3346, 3354, 87 L. Ed. 2d 444] (Mitsubishi Motors).) 6
(3b) In short, even assuming that the FAA does not apply to employment contracts, our inquiry into the enforceability of the
arbitration [**680] agreement at issue in this case entails the same inquiry under the CAA as the FAA: Are there reasons,
based on general contract law principles, for refusing to enforce the present arbitration agreement? In the present case, the
answer turns on whether and to what extent the arbitration agreement was unconscionable or contrary to public policy,
questions to which we now turn. 7
[***757] C. Arbitration of FEHA Claims
(5a) The United States Supreme Court's dictum that a party, in agreeing to arbitrate a statutory claim, "does not forgo the
substantive rights afforded by the statute [but] only submits to their resolution in an arbitral . . . forum" ( Mitsubishi Motors,
supra, 473 U.S. at p. 628 [105 S. Ct. at p. 3354]) is as much prescriptive as it is descriptive. That is, it sets a standard by which
arbitration agreements and practices are to be measured, and disallows forms [*100] of arbitration that in fact compel claimants
to forfeit certain substantive statutory rights.
(6) Of course, certain statutory rights can be waived. ( Bickel v. City of Piedmont (1997) 16 Cal. 4th 1040, 1048-1049 [68 Cal.
Rptr. 2d 758, 946 P.2d 427], abrogated with regard to its construction of the Permit Streamlining Act [Stat. 1998, ch. 283, §
5].) But arbitration agreements that encompass unwaivable statutory rights must be subject to particular scrutiny. This
unwaivability derives from two statutes that are themselves derived from public policy. First, Civil Code section 1668 states:
"All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or
willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the
law." "Agreements whose object, directly or indirectly, is to exempt [their] parties from violation of the law are against public
policy and may not be enforced." ( In re Marriage of Fell (1997) 55 Cal. App. 4th 1058, 1065 [64 Cal. Rptr. 2d 522].) Second,
Civil Code section 3513 states, "Anyone may waive the advantage of a law intended solely for his benefit. But a law
established for a public reason cannot be contravened by a private agreement." (See In re Marriage of Fell, supra, 55 Cal. App.
4th at p. 1064; Bickel v. City of Piedmont, supra, 16 Cal. 4th at pp. 1048-1049 [rights under statute may be waived by
agreement when public benefit is incidental to the legislation's primary purpose].)
(5b) There is no question that the statutory rights established by the FEHA are "for a public reason." "The broad goal of the
FEHA is set forth at [Government Code] section 12920, which states in pertinent part: 'It is hereby declared as the public policy
of this state that it is necessary to protect and safeguard the right and opportunity of all persons to seek, obtain, and hold
employment without discrimination or abridgement on account of race, religious creed, color, national origin, ancestry,
66 Nothing in this opinion, however, should be interpreted as implying that an arbitration agreement can restrict an employee's resort to the
Department of Fair Employment and Housing, the administrative agency charged with prosecuting complaints made under the FEHA, or that
the department would be prevented from carrying out its statutory functions by an arbitration agreement to which it is not a party. (See
Gilmer, supra, 500 U.S. at p. 28 [111 S. Ct. at p. 1653] [employment arbitration agreement does not preclude employee's complaint to the
United States Equal Employment Opportunity Commission].)
77 The employees also argue that the arbitration agreements did not clearly put them on notice that they would be required to arbitrate
statutory as well as contractual claims, and that they therefore did not knowingly waive the litigation of such claims. They point to the fact
that the arbitration agreement refers principally to arbitration of wrongful termination claims "in violation of any express or implied
condition, term or covenant of employment," which appears to refer to contractual rights, and only makes mention of encompassing a
termination "otherwise in violation of any of my rights." (See ante, at p. 92.) The Ninth Circuit has held that an employee cannot be
compelled to arbitrate a statutory antidiscrimination claim unless the arbitration agreement expressly puts the employees on notice that these
claims are included. ( Renteria v. Prudential Ins. Co. of America (9th Cir. 1997) 113 F.3d 1104.) Other courts have disagreed. (Seus, supra,
146 F.3d at pp. 183-184 & fn. 2; Patterson v. Tenet Healthcare Inc. (8th Cir. 1997) 113 F.3d 832, 838.) The question whether the arbitration
agreement was sufficient to permit the employees to knowingly waive the right to a jury trial was not one of the issues on which the
employees petitioned for review and is tangential to the principal claims on which we granted review. We decline to decide this issue. (See
Cal. Rules of Court, rule 28(e)(2) ["Only the issues set forth in the petition [for review] and answer or fairly included in them need be
considered by the court"].)

Page 8 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
physical handicap, medical condition, marital status, sex or age.' " ( Rojo v. Kliger (1990) 52 Cal. 3d 65, 72-73 [276 Cal. Rptr.
130, 801 P.2d 373].) As we stated in Rojo: "The public policy against [**681] sex discrimination and sexual harassment in
employment, moreover, is plainly one that 'inures to the benefit of the public at large rather than to a particular employer or
employee.' [Citation.] No extensive discussion is needed to establish the fundamental public interest in a workplace free from
the pernicious influence of sexism. So long as it exists, we are all demeaned." ( Id. at p. 90, italics omitted; see also Stevenson
v. Superior Court (1997) 16 Cal. 4th 880, 897 [66 Cal. Rptr. 2d 888, 941 P.2d 1157] [recognizing that the FEHA's age
discrimination provisions similarly incorporate fundamental public policy].) It is indisputable that [***758] an employment
contract that required employees to waive their rights under the FEHA [*101] to redress sexual harassment or discrimination
would be contrary to public policy and unlawful.
In light of these principles, it is evident that an arbitration agreement cannot be made to serve as a vehicle for the waiver of
statutory rights created by the FEHA. We suggested as much in our recent discussion of rights derived from the Consumer
Legal Remedies Act ( Civ. Code, § 1750 et seq.), which the Legislature had declared to be unwaivable. In determining that the
attorney fees and cost-shifting provisions provided by that statute, which advanced the statute's goals, should be implicitly
incorporated into the arbitration agreement at issue, we stated that parties agreeing to arbitrate statutory claims must be deemed
to "consent to abide by the substantive and remedial provisions of the statute. [Citation.] Otherwise, a party would not be able
to fully ' "vindicate [his or her] statutory cause of action in the arbitral forum." ' " ( Broughton, supra, 21 Cal. 4th at p. 1087,
quoting Gilmer, supra, 500 U.S. at pp. 27-28 [111 S. Ct. at p. 1653].)
The employees argue that arbitration contains a number of shortcomings that will prevent the vindication of their rights under
the FEHA. In determining whether arbitration is considered an adequate forum for securing an employee's rights under FEHA,
we begin with the extensive discussion of this question in Cole v. Burns Intern. Security Services (D.C. Cir. 1997) 105 F.3d
1465 [323 App.D.C. 133] (Cole), in the context of Title VII claims. In that case, the employee, a security guard, filed Title VII
claims against his former employer alleging racial discrimination and harassment. He had signed an arbitration form
committing himself to arbitrate such claims.
The court began its analysis by acknowledging the difficulties inherent in arbitrating employees' statutory rights, difficulties not
present in arbitrating disputes arising from employee rights under collective bargaining agreements. "The reasons for this
hesitation to extend arbitral jurisprudence from the collective bargaining context are well-founded. The fundamental distinction
between contractual rights, which are created, defined, and subject to modification by the same private parties participating in
arbitration, and statutory rights, which are created, defined, and subject to modification only by Congress and the courts,
suggests the need for a public, rather than private, mechanism of enforcement for statutory rights." ( Cole, supra, 105 F.3d at p.
1476.) Although Gilmer, supra, 500 U.S. 20, as discussed above, had held that statutory employment rights outside of the
collective bargaining context are arbitrable, the Cole court recognized that Gilmer, both explicitly and implicitly, placed limits
on the arbitration of such rights. "Obviously, Gilmer cannot be read as holding that an arbitration agreement [*102] is
enforceable no matter what rights it waives or what burdens it imposes. [Citation.] Such a holding would be fundamentally at
odds with our understanding of the rights accorded to persons protected by public statutes like the ADEA and Title VII. The
beneficiaries of public statutes are entitled to the rights and protections provided by the law." (Cole, supra, 105 F.3d at p.
1482.)
The Cole court noted that "[i]n Gilmer, the employee raised four challenges to arbitration under the New York Stock Exchange
Rules, claiming that arbitration impermissibly diminished his ability to effectively vindicate his statutory rights. First, Gilmer
challenged the impartiality of the arbitrators. [Citation.] The Court rejected this challenge, finding that the NYSE Rules
themselves provide protection against biased arbitrators [**682] and that judicial review under the FAA would allow the courts
to set aside any decision in which there 'was evident partiality or corruption in the arbitrators.' [Citation.] Second, Gilmer
objected that the limited discovery allowed in arbitration would unfairly hamper his ability to prove discrimination. [Citation.]
Again, the Court rejected this claim, pointing out that the NYSE Rules provided for discovery and [***759] that agreements to
arbitrate are desirable precisely because they trade the procedures of the federal courts for the simplicity, informality, and
expedition of arbitration. [Citation.] Third, Gilmer objected that, because arbitrators do not always issue written awards, public
knowledge of discrimination, appellate review, and the development of the law would be undermined by arbitration of his
statutory claims. [Citation.] This claim too was rejected because, in fact, the NYSE Rules require that arbitration awards be in
writing and allow public access to awards. [Citation.] Finally, Gilmer's objection that arbitration did not provide for equitable

Page 9 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
relief was rejected because the NYSE Rules did not restrict the types of relief available." ( Cole, supra, 105 F.3d at pp. 1481-
1482.)
Based on Gilmer, supra, 500 U.S. 20, and on the basic principle of nonwaivability of statutory civil rights in the workplace, the
Cole court formulated five minimum requirements for the lawful arbitration of such rights pursuant to a mandatory
employment arbitration agreement. Such an arbitration agreement is lawful if it "(1) provides for neutral arbitrators, (2)
provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would
otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or
expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of
employment 'effectively may vindicate [his or her] statutory cause of action in the arbitral forum.' " (Cole, supra, 105 F.3d at p.
1482, italics omitted.)
[*103] Except for the neutral arbitrator requirement, which we have held is essential to ensuring the integrity of the arbitration
process ( Graham v. Scissor-Tail, Inc. (1981) 28 Cal. 3d 807, 825 [171 Cal. Rptr. 604, 623 P.2d 165] (Scissor-Tail), and is not
at issue in this case, the employees claim that the present arbitration agreement fails to measure up to the Cole requirements
enumerated above. We consider below the validity of those requirements and whether they are met by the employer's
arbitration agreement. 8
1. Limitation of Remedies
The principle that an arbitration agreement may not limit statutorily imposed remedies such as punitive damages and attorney
fees appears to be undisputed. We suggested as much in Broughton when we held that an agreement to arbitrate a statutory
claim implicitly incorporates "the substantive and remedial provisions of the statute" so that parties to the arbitration would be
able to vindicate their " ' "statutory cause of action in the arbitral forum." ' " (Broughton, supra, 21 Cal. 4th at p. 1087.)
Similarly, in Graham Oil v. ARCO Products Co. (9th Cir. 1995) 43 F.3d 1244 (Graham Oil), the court refused to enforce an
arbitration agreement between a petroleum franchiser and franchisee that did not allow for the punitive damages and attorney
fees remedies available under the Petroleum Marketing Practices Act, because both of these remedies are "important to the
effectuation of the PMPA's policies." ( Gaham Oil, supra, 43 F.3d at p. 1248.)
As stated, the arbitration agreement in this case provides in part: "I and [***760] Employer [**683] further expressly agree
that in any such arbitration, my exclusive remedies for violation of the terms, conditions or covenants of employment shall be
limited to a sum equal to the wages I would have earned from the date of any discharge until the date of the arbitration award. I
understand that I shall not be entitled to any other remedy, at law or in equity, including but not limited to reinstatement and/or
injunctive relief." (See ante, at p. 92.) The employees claim that the agreement compels them to arbitrate statutory claims
without affording the full range of statutory remedies, including punitive damages and attorney fees to a prevailing plaintiff,
available under [*104] the FEHA. (See Commodore Home Systems Inc. v. Superior Court (1982) 32 Cal. 3d 211, 221 [185
Cal. Rptr. 270, 649 P.2d 912]; Gov. Code, § 12965, subd. (b).)
The employer does not contest that the damages limitation would be unlawful if applied to statutory claims, but instead
contends that the limitation applies only to contract claims, pointing to the language in the penultimate sentence that refers to
"my exclusive remedy for violation of the terms, conditions or covenants of employment . . . ." Both the trial court and the
Court of Appeal correctly rejected this interpretation. While the above quoted language is susceptible to the employer's
interpretation, the final sentence--"I understand that I shall not be entitled to any other remedy . . . ."--makes clear that the
damages limitation was all-encompassing. We conclude this damages limitation is contrary to public policy and unlawful.
2. Adequate Discovery
88 We emphasize at the outset that our general endorsement of the Cole requirements occurs in the particular context of mandatory
employment arbitration agreements, in order to ensure that such agreements are not used as a means of effectively curtailing an employee's
FEHA rights. These requirements would generally not apply in situations in which an employer and an employee knowingly and voluntarily
enter into an arbitration agreement after a dispute has arisen. In those cases, employees are free to determine what trade-offs between arbitral
efficiency and formal procedural protections best safeguard their statutory rights. Absent such freely negotiated agreements, it is for the
courts to ensure that the arbitration forum imposed on an employee is sufficient to vindicate his or her rights under the FEHA.

Page 10 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
The employees argue that employers typically have in their possession many of the documents relevant for bringing an
employment discrimination case, as well as having in their employ many of the relevant witnesses. The denial of adequate
discovery in arbitration proceedings leads to the de facto frustration of the employee's statutory rights. They cite a report by the
Department of Labor's Commission on the Future of Worker-Management Relations, chaired by former Secretary of Labor
John Dunlop and including employee and employer representatives, which concludes that "if private arbitration is to serve as a
legitimate form of private enforcement of public employment law," it must among other things provide "a fair and simple
method by which the employee can secure the necessary information to present his or her claim." (Com. on the Future of
Worker-Management Relations, Report and Recommendations (1994) p. 31 (hereafter Dunlop Commission Report).) 9
We agree that adequate discovery is indispensable for the vindication of FEHA claims. The employer does not dispute the
point, but contends that the [*105] arbitration agreement at issue in this case does provide for adequate discovery by
incorporating by reference all the rules set forth in the CAA. Adequate provisions for discovery are set forth in the CAA at
Code of Civil Procedure section 1283.05, subdivision (a). 1010
[**684] [***761] The employees point out that the provisions of Code of Civil Procedure section 1283.05 are only
"conclusively deemed to be incorporated into" ( Code Civ. Proc., § 1283.1, subd. (a)) an agreement to arbitrate under section
1283.1 if the dispute arises "out of . . . any injury to, or death of, a person caused by the wrongful act or neglect of another"
(ibid.), and argues that this language does not apply to FEHA claims. They further argue that because adequate discovery is not
guaranteed under the arbitration agreement, FEHA claims should not be deemed arbitrable.
We note that one Court of Appeal case has held that a FEHA sexual harassment claim is considered an "injury to . . . a person"
within the meaning of Code of Civil Procedure section 1283.1, subdivision (a). ( Bihun v. AT&T Information Systems, Inc.
(1993) 13 Cal. App. 4th 976, 1005 [16 Cal. Rptr. 2d 787], disapproved on other grounds in Lakin v. Watkins Associated
Industries (1993) 6 Cal. 4th 644, 664 [25 Cal. Rptr. 2d 109, 863 P.2d 179]; but see Holmes v. General Dynamics Corp. (1993)
17 Cal. App. 4th 1418, 1436-1437 [22 Cal. Rptr. 2d 172] [contractual wrongful termination action held not to be a "personal
injury" within the meaning of Civ. Code, § 3291].) The scope of this provision is not before us. But even assuming that the
claim in this case is not the sort of injury encompassed by section 1283.1, subdivision (a), subdivision (b) of that section
permits parties to agree to incorporate Code of Civil Procedure section 1283.05. We infer from subdivision (b), and from the
fundamentally contractual nature of arbitration itself (see Vandenberg v. Superior Court (1999) 21 Cal. 4th 815, 831 [88 Cal.
Rptr. 2d 366, 982 P.2d 229]), that parties incorporating the CAA into their arbitration agreement are also permitted to agree to
something less than the full panoply of discovery provided in Code of Civil Procedure section [*106] 1283.05. We further
infer that when parties agree to arbitrate statutory claims, they also implicitly agree, absent express language to the contrary, to
such procedures as are necessary to vindicate that claim. (See Broughton, supra, 21 Cal. 4th at pp. 1086-1087.) As discussed
above, it is undisputed that some discovery is often necessary for vindicating a FEHA claim. Accordingly, whether or not the
employees in this case are entitled to the full range of discovery provided in Code of Civil Procedure section 1283.05, they are
99 The Dunlop Commission Report, anticipating the safeguards prescribed by Cole, supra, 105 F.3d 1465, stated that "both employers and
employees agree that if private arbitration is to serve as a legitimate form of private enforcement of public employment law, these systems
must provide: [P] a neutral arbitrator who knows the laws in question and understands the concerns of the parties; [P] a fair and simple
method by which the employee can secure the necessary information to present his or her claim; [P] a fair method of cost-sharing between the
employer and employee to ensure affordable access to the system for all employees; [P] the right to independent representation if the
employee wants it; [P] a range of remedies equal to those available through litigation; [P] a written opinion by the arbitrator explaining the
rationale for the result; and [P] sufficient judicial review to ensure that the result is consistent with the governing laws." (Dunlop Com. Rep.,
supra, at pp. 30-31.)
1010 Code of Civil Procedure section 1283.05, subdivision (a), states: "To the extent provided in Section 1283.1 depositions may be taken
and discovery obtained in arbitration proceedings as follows: [P] (a) After the appointment of the arbitrator or arbitrators, the parties to the
arbitration shall have the right to take depositions and to obtain discovery regarding the subject matter of the arbitration, and, to that end, to
use and exercise all of the same rights, remedies, and procedures, and be subject to all of the same duties, liabilities, and obligations in the
arbitration with respect to the subject matter thereof, as provided in Chapter 2 (commencing with Section 1985) of, and Article 3
(commencing with Section 2016) of Chapter 3 of, Title 3 of Part 4 of this code, as if the subject matter of the arbitration were pending before
a superior court of this state in a civil action other than a limited civil case, subject to the limitations as to depositions set forth in subdivision
(e) of this section." Subdivision (e) states that depositions may only be taken with the approval of the arbitrator.

Page 11 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
at least entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and
witnesses, as determined by the arbitrator(s) and subject to limited judicial review pursuant to Code of Civil Procedure section
1286.2. 1111
Therefore, although the employees are correct that they are entitled to sufficient discovery as a means of vindicating their
sexual discrimination claims, we hold that the employer, by agreeing to arbitrate the FEHA claim, has already impliedly
consented to such discovery. Therefore, lack of discovery is not grounds for holding a FEHA claim inarbitrable.
[***762] 3. Written Arbitration Award and Judicial Review
The employees argue that lack of judicial review of arbitration awards makes the vindication of FEHA rights in arbitration
illusory. They point to Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 27-28 [10 Cal. Rptr. 2d 183, 832 P.2d 899]
(Moncharsh), in which we held that an arbitration award may not be vacated for errors of law on the face of the decision, even
if these errors would cause substantial injustice. Arbitration, they argue, cannot be an adequate means of resolving a FEHA
[**685] claim if the arbitrator is essentially free to disregard the law.
(7) As the United States Supreme Court has stated: "[A]lthough judicial scrutiny of arbitration awards necessarily is limited,
such review is sufficient to ensure that arbitrators comply with the requirements of the statute" at issue. ( Shearson/American
Express Inc. v. McMahon (1987) 482 U.S. 220, 232 [107 S. Ct. 2332, 2340, 96 L. Ed. 2d 185] (McMahon).) In Moncharsh, we
acknowledged that judicial review may be appropriate when "granting finality to an arbitrator's decision would be inconsistent
with the protection of a party's statutory rights." (Moncharsh, supra, 3 Cal. 4th at p. 32; see also Board of Education v. Round
Valley Teachers Assn. (1996) 13 Cal. 4th 269, 276-277 [52 Cal. Rptr. 2d 115, 914 P.2d 193].)
[*107] (5c) We are not faced in this case with a petition to confirm an arbitration award, and therefore have no occasion to
articulate precisely what standard of judicial review is "sufficient to ensure that arbitrators comply with the requirements of [a]
statute." (McMahon, supra, 482 U.S. at p. 232 [107 S. Ct. at p. 2340].) All we hold today is that in order for such judicial
review to be successfully accomplished, an arbitrator in a FEHA case must issue a written arbitration decision that will reveal,
however briefly, the essential findings and conclusions on which the award is based. While such written findings and
conclusions are not required under the CAA ( Code Civ. Proc., § 1283.4; Baldwin Co. v. Rainey Construction Co. (1991) 229
Cal. App. 3d 1053, 1058, fn. 3 [280 Cal. Rptr. 499]), nothing in the present arbitration agreement precludes such written
findings, and to the extent it applies to FEHA claims the agreement must be interpreted to provide for such findings. In all other
respects, the employees' claim that they are unable to vindicate their FEHA rights because of inadequate judicial review of an
arbitration award is premature. (See Broughton, supra, 21 Cal. 4th at p. 1086.)
4. Employee Not to Pay Unreasonable Costs and Arbitration Fees
The employees point to the fact that the agreement is governed by Code of Civil Procedure section 1284.2, which provides that
"each party to the arbitration shall pay his pro rata share of the expenses and fees of the neutral arbitrator, together with other
expenses of the arbitration incurred or approved by the neutral arbitrator . . . ." They argue that requiring them to share the
often substantial costs of arbitrators and arbitration effectively prevents them from vindicating their FEHA rights.
In considering the employees' claim, we start with the extensive discussion of this issue in Cole, supra, 105 F.3d at pages
1483-1485. The Cole court held that it was unlawful to require an employee who is the subject of a mandatory employment
arbitration agreement to have to pay the costs of arbitration. The issue in that case was an arbitration agreement that was to be
governed by the rules of the American Arbitration Association (AAA). Under these rules, the court noted that the employee
may well be obliged to pay arbitrators' fees ranging from $ 500 to $ 1,000 per day or more, a $ 500 filing fee, and
administrative fees of $ 150 per day, in addition to room rental and court reporter fees. (Cole, supra, 105 F.3d at p. 1484 & fn.
12.) [***763] The court's reasons for requiring employer-financed arbitration are worth quoting at length:
1111 We recognize, of course, that a limitation on discovery is one important component of the "simplicity, informality, and expedition of
arbitration." (Gilmer, supra, 500 U.S. at p. 31 [111 S. Ct. at p. 1655].) The arbitrator and reviewing court must balance this desirable
simplicity with the requirements of the FEHA in determining the appropriate discovery, absent more specific statutory or contractual
provisions.

Page 12 of 23
Armendariz v. Foundation Health Psychcare Services, Inc.
"[I]n Gilmer [supra, 500 U.S. 20], the Supreme Court endorsed a system of arbitration in which employees are not required to
pay for the arbitrator [*108] assigned to hear their statutory claims. There is no reason to think that the Court would have
approved arbitration in the absence of this arrangement. Indeed, we are unaware of any situation in American jurisprudence in
which a beneficiary of a federal statute has been required to pay for the services of the judge assigned to hear her or his case.
Under Gilmer, arbitration is supposed to be a reasonable substitute for a judicial forum. Therefore, it would undermine
Congress's intent to prevent employees who are seeking to vindicate statutory rights from gaining access to a judicial forum and
then require them to pay for the services of an arbitrator when they would never be required to pay for a judge in court.
[**686] "There is no doubt that parties appearing in federal court may be required to assume the cost of filing fees and other
administrative expenses, so any reasonable costs of this sort that accompany arbitration are not problematic. However, if an
employee like Cole is required to pay arbitrators' fees ranging from $ 500 to $ 1,000 per day or more, . . . in addition to
administrative and attorney's fees, is it likely that he will be able to pursue his statutory claims? We think not. See David W.
Ewing, Justice On the Job: Resolving Grievances in the Nonunion Workplace (Harvard Business School Press 1989) at 291
(quoting corporate director of industrial relations at Northrop explaining why Northrop pays arbitrators' fees: '[W]e bear the
cost of the arbitration for the very practical reason that most of the employees who seek arbitration of their grievances simply
couldn't afford it if we did not.'). There is no indication in AAA's rules that an arbitrator's fees may be reduced or waived in
cases of financial hardship. These fees would be prohibitively expensive for an employee like Cole, especially after being fired
from his job, and it is unacceptable to require Cole to pay arbitrators' fees, because such fees are unlike anything that he would
have to pay to pursue his statutory claims in court.
"Arbitration will occur in this case only because it has been mandated by the employer as a condition of employment. Absent
this requirement, the employee would be free to pursue his claims in court without having to pay for the services of a judge. In
such a circumstance--where arbitration has been imposed by the employer and occurs only at the option of the employer--
arbitrators' fees should be borne solely by the employer." (Cole, supra, 105 F.3d at pp. 1484-1485, fns. and italics omitted.)
The Tenth and Eleventh Circuit Courts of Appeals have adopted a position on arbitration fees for statutory employment claims
essentially in accord with Cole. ( Shankle v. B-G Maintenance Management of Colorado (10th Cir. 1999) 163 F.3d 1230,
1234-1235; Paladino v. Avnet Computer Technologies, [*109] Inc. (11th Cir. 1998) 134 F.3d 1054, 1062 (conc. opn. of Cox,
J., joined by Tjoflat, J.).) In Shankle, the court estimated that the employee would have to pay between $ 1,875 and $ 5,000 in
forum costs to resolve his claim. As the court stated: "Mr. Shankle could not afford such a fee, and it is unlikely other similarly
situated employees could either. The Agreement thus placed Mr. Shankle between the proverbial rock and a hard place--it
prohibited use of the judicial forum, where a litigant is not required to pay for a judge's services, and the prohibitive cost
substantially limited use of the arbitral forum. [Citation.] Essentially, B-G Maintenance required Mr. Shankle to agree to
mandatory arbitration as a term of continued employment, yet failed to provide an accessible forum in which he could resolve
his statutory rights. Such a result clearly undermines the remedial and deterrent functions of the federal anti-discrimination
laws." (Shankle, supra, 163 F.3d at pp. 1234-1235.)
[***764] Although we have not addressed this issue, we quoted Cole, supra, 105 F.3d 1465, on this precise point in California
Teachers Assn. v. State of California (1999) 20 Cal. 4th 327, 355 [84 Cal. Rptr. 2d 425, 975 P.2d 622] (California Teachers
Assn.). We considered in that case whether it was constitutionally permissible to statutorily require a teacher who loses an
administrative challenge to his dismissal to pay one-half of the administrative law judge's fees. As we stated: "Although the
court's conclusion in Cole did not rest upon the requirements of procedural due process, the court was required to consider
whether arbitration served as a reasonable substitute for a judicial forum. If employees in the private sector cannot be
compelled to pay the cost of private arbitrators when seeking to vindicate statutory rights in the arbitral forum, then certainly
public employees seeking to vindicate constitutionally based interests in an official quasi-judicial forum cannot be required to
compensate the state for the cost of the administrative law judge. As in Cole, such fees would be unlike anything teachers
would have to pay to protect their constitutional interests in court." ( Id. at p. 356.) Our holding in California Teachers Assn.
serves to confirm the principle inherent in Cole that statutory or constitutional rights may be transgressed as much by the
imposition of undue costs as by outright denial.
[**687] The employer argues that at least two federal circuit courts of appeals have not followed what it terms Cole's
"preemptive approach" to the question of arbitration costs. In Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith Inc., supra,
170 F.3d 1 (Rosenberg), the court considered a challenge to an arbitration agreement encompassing Title VII claims, in which