California Federal Court Rejects Unconscionability Claims, Enforces Delegation Clauses in Arbitration Agreements

Two former Aon employees sued Aon, claiming restrictive covenants in agreements they entered into with the company were void, illegal, and unenforceable. Aon moved to compel arbitration per arbitration provisions in the relevant contracts. The plaintiffs argued that the arbitration provisions were both procedurally and substantively unconscionable, and thus unenforceable. In response, Aon pointed to “delegation clauses” in the provisions, pursuant to which disputes about gateway arbitrability issues are to be decided by an arbitrator. The plaintiffs claimed the delegation clauses were also unconscionable, but the U.S. District Court for the Northern District of California disagreed.

To successfully challenge a delegation clause, the court explained that a party cannot challenge the broader arbitration agreement in which the clause is contained; rather, it must be shown that the specific delegation language is itself invalid based on a general principle of contract law. Here, the court ruled initially that the delegation clauses at issue “clearly and unmistakably” delegated gateway questions to an arbitrator, rejecting the plaintiffs’ effort to argue otherwise. The plaintiffs also claimed the clauses were unconscionable, but the court disagreed. While finding the clauses “[were] — at most — minimally procedurally unconscionable” insofar as they were non-negotiable conditions of employment, the court found the clauses were in no way substantively unconscionable. Thus, applying the “sliding scale” approach, the court held that the clauses were valid, enforceable, and required granting Aon’s motion to compel arbitration.

Norris v. Aon PLC, No. 3:21-cv-00932 (N.D. Cal. Apr. 2, 2021)