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Arbitration Clause is Ruled ‘Unconscionable’ by Northern District of California Judge

Wednesday, April, 10, 2013


According to U.S. District Judge Susan Illston of the Northern District of California, the arbitration clause used in an employment contract by MHN Government Services and Managed Health Network was "so permeated with unconscionability" that it could not be compelled.  The ruling was a surprise for the company, which offers health services to members of the military and their families, due to the Supreme Court’s approval of arbitration in the landmark AT&T v. Concepcion case.  However, that same Supreme Court ruling also stated that an arbitration clause was enforceable if, and only if, it was found to be conscionable. 

Jahan Sagafi, an attorney with Leiff Cabraser Heimann & Bernstein, represented the plaintiffs and stated that "the decision reaffirms the continued vitality of Armendariz.”  The case to which he referred was also a California-based trial (Armendariz v. Found Health Psychcare Svcs.) in which the unconscionability of the arbitration clause was found to render it unenforceable.  Sagafi further stated that "California's unconscionability rules still apply, just as Concepcion said."

The dispute began when a class action lawsuit was filed against MHN Government Services and Managed Health Network by the plaintiffs, Thomas Zabororwski and several other “military family life consultants” who had worked for the company.  The plaintiffs alleged that their work schedule more closely resembled that of de facto hourly employees than independent contractors; therefore, they requested the same benefits and overtime payment offered to hourly employees. 

Due to the arbitration clause within the employment contract, MHN Government Services and Managed Health Network petitioned the court to compel arbitration.  However, the employees alleged that the employment contract had several sections within it that were "substantially unconscionable” and requested that the court grant their class action request.   The case is Thomas Zaborowski v. MHN Government Services Inc. and Managed Health Network Inc., U.S. District Court for the Northern District of California, No. 12-05109.