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Arbitration Clause in Independent Contractor Agreement Invalid

Employers doing business in California know, or should know, that arbitration agreements are oftentimes thrown out as being “unconscionable.”  See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, and its progeny.  If the employment arbitration agreement is procedurally and substantively unconscionable the courts will not enforce the agreement.  In the typical employer-employee context, the courts oftentimes have no trouble deciding the agreement is procedurally unconscionable because the employer drafts the agreement and gives it to the employee on a take-it-or-leave-it basis.  The courts believe an employee’s option to find a job elsewhere does not mitigate the inequality of bargaining power between the employer and employee.

But what about an arbitration clause between a company and an independent contractor?  Does the same analysis apply and will the court be more or less likely to find the agreement procedurally unconscionable?  In Wherry v. Award, Inc.  (11 C.D.O.S. 2413), a California Appellate Court decided that the fact that “plaintiffs are independent contractors and not employees makes no difference in this context.”

Whether the company uses employees or independent contractors, arbitration agreements should be reviewed by knowledgeable counsel before using or executing the agreement.  I have my own view on whether arbitration clauses are a good idea in the first place, but if you do business in California you need to be aware of the issues that you will face should you enter into an arbitration agreement.

The Law Office of Phillip J. Griego
95 South Market Street, Suite 520
San Jose, CA 95113
Tel. 408-293-6341
Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.

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Phillip J. Griego represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.