Justices Take On Another California Rule – When An Arbitration Agreement Is Too Flawed To Enforce

The U.S. Supreme Court has agreed to review whether the Federal Arbitration Act (FAA) preempts a California state court rule on unconscionable provisions that is purportedly applied more stringently to arbitration agreements than to other contracts. Under the California rule, arbitration agreements with more than one unconscionable provision may not be enforced despite an express severability clause.

In MHN Government Services, Inc., et al. v. Zaborowski, et al., Case No. 14-1458 (cert. granted 10-1-15), the justices will consider the Ninth Circuit's 2-1 opinion that denied arbitration of Fair Labor Standards Act (FLSA) and state court claims brought by consultants who offer short-term financial, child services, and victim-advocacy counseling at U.S. military installations.

The consultants filed a putative class action in district court against MHN Government Services, Inc. (MHN), contending they were incorrectly classified as independent contractors rather than employees, which denied them overtime pay and other benefits. MHN subsequently moved to compel arbitration under the Provider Services Task Order Agreements the named consultants had signed, which included mandatory arbitration provisions as well as an express severability clause.

Based on California law, the...