## Facts

- Ritarose Capili worked as a sales associate for The Finish Line, Inc. at a California retail store during a second employment period from August 2013 to July 2014.
- As a condition of being considered for employment, Capili was required to accept an “Employee Dispute Resolution Plan” requiring arbitration of “any and all” employment-related disputes, including statutory discrimination and wage-and-hour claims.
- The plan contained a forum-selection term requiring arbitration in Indiana, where Finish Line was headquartered.
- The plan required the employee to pay half of the arbitrator’s fees and other arbitration costs.
- The plan exempted certain employer-leaning claims (e.g., unfair competition, disclosure of confidential information or trade secrets), allowing Finish Line to pursue those claims in court.
- Capili sought pregnancy- and medical-related leave and was terminated in July 2014.
- Capili filed suit in federal court alleging unlawful termination related to pregnancy and medical leave; Finish Line moved to compel arbitration under the Federal Arbitration Act.

## Issues

1. Whether the mandatory employment arbitration plan was unenforceable under California unconscionability doctrine due to procedural unconscionability (adhesion) and substantive unconscionability (Indiana forum, cost-splitting, and lack of mutuality).
2. Whether any unconscionable provisions could be severed to permit enforcement of the remaining arbitration agreement.
3. Whether, consistent with the FAA, Finish Line could avoid an unconscionability finding by offering post-dispute waivers of objectionable terms.

## Decision

- The district court denied Finish Line’s motion to compel arbitration and to stay or dismiss the action, holding the arbitration plan was both procedurally and substantively unconscionable under California law.
- The court found the agreement was imposed on a take-it-or-leave-it basis as a condition of employment, supporting procedural unconscionability.
- The court found substantive unconscionability based on the Indiana forum requirement, employee cost-splitting, and nonmutual carve-outs favoring Finish Line.
- The court declined to sever individual terms, concluding unconscionability permeated the agreement’s design.
- On interlocutory appeal, the Ninth Circuit affirmed the denial of the motion to compel arbitration, holding unconscionability remained a valid, generally applicable defense after Concepcion and that post-hoc waivers did not cure unconscionability assessed at contract formation.

## Legal Principles

- Under California law, an adhesive employment arbitration agreement imposed as a condition of employment supports at least minimal procedural unconscionability.
- Substantive unconscionability may be shown where an arbitration agreement is materially one-sided, including:
  - out-of-state forum terms that impose substantial burdens on an employee while favoring the employer;
  - provisions requiring employees to share arbitral forum costs that would not be incurred in court; and
  - carve-outs permitting the employer to litigate its preferred claims while requiring employees to arbitrate theirs.
- Unconscionability is evaluated at the time the agreement was made; an employer generally cannot cure unconscionable terms by later offering to waive them after a dispute arises.
- Courts may sever unconscionable terms only when they can be removed without rewriting the agreement; when multiple central provisions are unconscionable, a court may refuse to sever and decline to compel arbitration.
- The FAA does not preempt application of state unconscionability doctrine when applied evenhandedly to arbitration and nonarbitration contracts.

## Conclusion

The court refused to compel arbitration because the mandatory employment arbitration plan, imposed as a condition of employment, combined an Indiana venue requirement, employee cost-splitting, and employer-favoring carve-outs that rendered the agreement unconscionable as formed and not salvageable through severance or post-dispute waivers.


Capili v. The Finish Line, Inc., 116 F. Supp. 3d 1000 (N.D. Cal. 2015)