The recent decision in Stoker v. Blue Origin, LLC is the latest entry in a long line of cases informing the scope and breadth of mandatory arbitration agreements.  Although the trial court denied Blue Origin’s motion to compel arbitration based on the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA), the Second District affirmed on entirely different grounds, holding the agreement procedurally and substantively unconscionable and refusing to sever the offending provisions.  This case is another in a recent trend limiting the effectiveness of severability clauses in employment arbitration agreements.

Craig Stoker was hired in 2020 as a senior director of program management and signed an employment agreement requiring arbitration of essentially every dispute that he could raise against the company, while carving out those claims most likely to be brought by the company against him.  After he was terminated in 2022, he sued for retaliation, gender harassment and discrimination, wrongful termination, and related claims.  Blue Origin moved to compel arbitration.  Stoker opposed the motion by invoking the EFAA and the trial court denied the motion on EFAA grounds.  On appeal, the Second District did not reach the EFAA issue, holding instead that the agreement could not be enforced as a matter of California contract law.

The court found the agreement to be adhesive – meaning that it was presented on a “take-it-or-leave-it” basis – which by itself indicates only a modest degree of procedural unconscionability.  The court then turned its attention to the question of whether the agreement was also substantively unconscionable and identified four distinct defects.  First, the section describing the covered claims was overbroad because it extended beyond employment-related disputes to “any and all claims” between Stoker and Blue Origin and affiliated third party entities and individuals.  Using the same rhetorical approach as in Cook v. University of Southern California, the court illustrated the breadth with pointed examples, such as a future auto accident with another Blue Origin employee, or property damage from rocket debris.  The court rejected Blue Origin’s narrowing construction that the qualifier “including, without limitation, claims arising out of or relating to my employment” narrowed the broader language, observing that “‘all’ means all.”

Second, the agreement lacked mutuality.  The carve-outs from arbitration tracked almost perfectly with the universe of claims an employer would bring, while the covered claims encompassed nearly every claim an employee would bring.  The agreement also contained a predispute jury trial waiver applicable to claims that fall outside arbitration, a provision that has been unenforceable in California since 2005.  Lastly, the class and representative action waiver was deemed overbroad, purporting to extract a categorical waiver of representative PAGA claims that recent appellate and California Supreme Court decisions have declared unenforceable as a matter of public policy.

The most important part of the opinion, however, is the court’s treatment of the severance provision.  The court refused to sever the principal defects because doing so would have required the court to add limiting language to the scope provision and strike the exclusions from the carve-outs – in effect, substantively rewriting the agreement.  As recent decisions have made clear, California courts have no authority to “reform and augment” an unconscionable agreement by writing in terms to which the parties never agreed.  The court then turned to the question of whether the defects in the agreement reflected a systematic effort to impose arbitration on the weaker party as a forum favoring the stronger party.  Because the agreement contained multiple intertwined defects, the court declined to use the severance provision as it would “incentivize employers to draft one-sided arbitration agreements by modifying this agreement to include the bilateral terms the employer should have included in the first place.”  The severability clause, the court concluded, could not dictate the outcome where severance would not further the interests of justice.

While severability clauses continue to serve a purpose, Stoker is a reminder that they will not necessarily rescue an agreement when the defects, taken together, suggest a one-sided design.  Given the trajectory of the recent cases of Cook, Ayala-Ventura, Ramirez, and now Stoker, employers may find it worthwhile to update any arbitration agreements that has not been reviewed recently.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.