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Retailer Forever 21’s Arbitration Agreement Upheld

Monday, April, 11, 2016

The California Supreme Court recently handed down a long-awaited opinion concerning the case against clothing and accessories retailer Forever 21. The ruling concerned an arbitration agreement and stated that an arbitration agreement is not unconscionable because it restates existing law. This resolves the disagreement between state appellate courts that many believe should have never existed in the first place.


The case began after employee Maribel Baltazar was hired by Forever 21 in 2007. She was required to sign an arbitration agreement that required her to settle all disputes with her employer through arbitration. She quit in 2011 and sued the company for harassment, racial, and sexual discrimination. She also said she suffered retaliation during her employment.


Forever 21 attempted to compel arbitration to settle the suit, which was consistent with Baltazar’s employee agreement. She argued the agreement was unconscionable and unenforceable, an opinion with which the trial court agreed. The Court of Appeal reversed that ruling and most recently, the California Supreme Court upheld the appeal court’s ruling.


The court rejected several arguments made by Baltazar and determined the agreement was not unconscionable on the grounds it used only claims like harassment and discrimination that an employee could raise against an employer. The agreement also subjected all employment-related claims to arbitration, and incorporated by reference a set of procedural rules (from the American Arbitration Association), unless those rules made the agreement unconscionable, which they did not.


The ruling rejects a more recent trend that seems to be occurring – invalidating arbitration agreements for technical, abstract, or obscure reasons, even if there is little or no impact on the dispute.