U.S. Supreme Court to Review California’s “Arbitration Unfriendly” Rule


The U.S. Supreme Court granted certiorari last week in MHN Government Services, Inc. v. Zaborowski, a case in which the Ninth Circuit affirmed a lower court’s decision to sever an arbitration clause. The Supreme Court’s decision to review this case is significant given the number of contracts providing that California law controls.

In Zaborowski, counselors who provided services to members of the military argued that the defendant employer deemed them to be independent contractors (rather than employees) in violation of state and federal labor laws. The plaintiffs argued that the arbitration clause in the governing agreement was unconscionable under California law, and the district court agreed.

The Ninth Circuit affirmed, holding that the arbitration clause at issue contained several unconscionable terms and concluded the lower court did not abuse its discretion when it refused to sever the terms, which resulted in the invalidation of the clause.

Notably, California state statutes allow courts to sever invalid contract provisions provided the severing does not alter the fundamental nature of the parties’ agreement. However, in Amendariz v. Foundation Health Psychcare Services, the California Supreme Court ruled that when there is “more than one” invalid provision, those provisions are deemed to permeate the contract, which requires the court to strike down the agreement.

In its Liberty Blog, the Pacific Legal Foundation argues that California courts maintain a general hostility to arbitration and continue to defy Supreme Court holdings. It will be interesting to see the Supreme Court’s response as well as the scope of its opinion.

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