## Facts

- Thomas Zaborowski and other mental-health clinicians worked for MHN Government Services, Inc. and related entities (collectively, MHN) providing behavioral health services connected to MHN’s government contracts.
- As a condition of employment, Zaborowski signed a standard-form arbitration agreement requiring arbitration of employment-related disputes.
- The agreement was presented on a take-it-or-leave-it basis, with MHN in a superior bargaining position and no meaningful opportunity for the employee to negotiate terms.
- The arbitration agreement included procedural rules that affected the arbitral forum, including:
  - Arbitrator selection in which MHN would provide a list of three potential arbitrators and the employee had to choose from that list.
  - A requirement that arbitration be initiated within six months of a claim arising.
  - Filing and arbitration fees that could total multiple thousands of dollars.
  - A costs provision allowing the substantively prevailing party’s costs to be shifted to the losing party.
  - A bar on punitive damages.
- Zaborowski filed suit in federal court alleging violations of the Fair Labor Standards Act (FLSA) (and related wage-and-hour claims).
- MHN moved to compel arbitration under the Federal Arbitration Act (FAA).
- The district court denied the motion, finding procedural unconscionability and multiple substantively unconscionable terms, and concluding the provisions were not severable.

## Issues

1. Whether the employment arbitration agreement was unenforceable under California law because it was procedurally unconscionable and contained multiple substantively unconscionable terms.
2. Whether the district court abused its discretion by refusing to sever the unconscionable provisions and instead denying enforcement of the arbitration agreement as a whole.
3. Whether the FAA preempted the application of California unconscionability and severability doctrine to invalidate the arbitration agreement.

## Decision

- The Ninth Circuit affirmed the district court’s order denying MHN’s motion to compel arbitration.
- The court agreed the agreement was procedurally unconscionable because it was imposed as a condition of employment in an adhesive setting with unequal bargaining power.
- The court agreed multiple provisions were substantively unconscionable, including MHN’s control over the initial arbitrator pool, the restrictive six-month deadline to initiate arbitration, the high fee structure and cost shifting, and the bar on punitive damages.
- The court held the district court did not abuse its discretion in declining to sever because the unconscionable terms affected central features of the arbitration process and were sufficiently widespread that severance would require rewriting the agreement.
- The court rejected MHN’s FAA argument, concluding California’s generally applicable contract doctrines were applied in an evenhanded manner.
- The disposition was per curiam; Judge Gould wrote separately, concurring in part and dissenting in part.

## Legal Principles

- Under California law, an arbitration agreement imposed as a nonnegotiable condition of employment may support a finding of procedural unconscionability.
- Substantive unconscionability may be shown where arbitration procedures and remedies are overly harsh or one-sided, including employer-influenced arbitrator selection, unusually short filing deadlines, deterrent fee structures or cost shifting, and limits on statutory remedies.
- A court may refuse to sever and instead invalidate an arbitration agreement when unconscionable provisions are numerous and affect core aspects of the arbitral forum, making severance tantamount to rewriting the contract.
- The FAA permits arbitration agreements to be invalidated based on generally applicable contract defenses such as unconscionability, so long as those doctrines are not applied in a way that targets arbitration.

## Conclusion

In *Zaborowski v. MHN Government Services*, the Ninth Circuit affirmed the denial of MHN’s motion to compel arbitration, holding that the mandatory employment arbitration agreement was procedurally unconscionable and substantively unconscionable in several key respects, and that the district court acted within its discretion in refusing to sever the offending terms; applying California unconscionability and severability rules in this manner was not preempted by the FAA.


Zaborowski v. MHN Government Services, 601 F. App’x 461 (2014)