## Facts

- Two anonymous exotic dancers (the dancers) worked for SFBSC Management, LLC (BSC), which managed nightclubs where they performed.
- As a condition of working, BSC required dancers to sign written employment contracts that included an arbitration clause.
- The arbitration clause required arbitration of all claims between a dancer and BSC.
- The contracts included a provision requiring the dancer and BSC to share arbitration costs.
- The contracts included a waiver barring the dancer from bringing or joining a class or collective action.
- BSC did not allow dancers to take the contracts home to review before signing.
- The dancers alleged BSC had a practice of rushing dancers to sign while they were mostly naked and inebriated, and alleged that occurred when they signed.
- A former club manager submitted declarations supporting the dancers’ description of how BSC presented the contracts for signature.
- The dancers sued BSC in the U.S. District Court for the Northern District of California, asserting wage-and-hour violations under the Fair Labor Standards Act and California law.
- BSC moved to compel arbitration based on the signed agreements.

## Issues

1. Whether BSC’s arbitration agreements were unenforceable under California law because they were procedurally and substantively unconscionable, notwithstanding the Federal Arbitration Act.
2. Whether the arbitration cost-sharing provision and the class/collective action waiver rendered the agreements substantively unconscionable in the employment context.
3. Whether any unconscionable provisions could be severed so that arbitration could still be compelled.

## Decision

- The court denied BSC’s motion to compel arbitration.
- The court found a strong showing of procedural unconscionability based on the contracts’ take-it-or-leave-it nature and the alleged circumstances of signing (including being rushed, not allowed to take the contract home, and signing while mostly naked and allegedly inebriated).
- The court found substantive unconscionability based on unfair terms, including arbitration cost-sharing and a class/collective action waiver described as one-sided in operation.
- The court declined to sever the offending terms and held the arbitration agreements unenforceable as a whole.

## Legal Principles

- The Federal Arbitration Act favors enforcement of arbitration agreements, but it permits application of generally applicable state contract defenses such as unconscionability.
- Under California law, unconscionability has two components—procedural and substantive—and both must be present to some degree; a higher degree of one may compensate for a lower degree of the other.
- Procedural unconscionability examines oppression or surprise in contract formation, including adhesion contracts and circumstances that deny meaningful choice or meaningful opportunity to review.
- Substantive unconscionability examines whether terms are overly harsh or one-sided, including provisions that impose costs on employees that can deter pursuit of statutory wage-and-hour claims.
- A court may sever unconscionable terms only when doing so would remove the unfairness without requiring the court to rewrite the agreement; when defects are multiple and central, a court may refuse to enforce the arbitration agreement in its entirety.

## Conclusion

In Roe v. SFBSC Management, LLC, the Northern District of California refused to compel arbitration of exotic dancers’ FLSA and state wage-and-hour claims because the club’s standard-form arbitration agreements were unconscionable under California law, given the manner of presentation and review restrictions, the arbitration cost-sharing term, and a one-sided class/collective action waiver, and the court found the defects too substantial to cure through severance.


Roe v. SFBSC Management, LLC, 24 Wage & Hour Cas. 2d (BNA) 592 (2015)