Column: Cisco loses a round on forcing an employee into arbitration

Big companies love to force their legal adversaries into arbitration, especially when those adversaries are employees, customers or others without money or power, and therefore are at a disadvantage. Judges usually love arbitration too because it relieves them of the chore of overseeing routine docket-clogging lawsuits.

Not so San Francisco Superior Court Judge Harold Kahn, who on Tuesday slapped down an effort by Cisco Systems to force Ann Bark, 63, into arbitration on her age-discrimination claim. Kahn ruled that Cisco effectively surprised Bark with the arbitration requirement by hiding it deep within a form that appeared to relate solely to intellectual property claims — and which Bark was required to sign as a condition to joining Cisco in 1998.

Kahn found a “high degree of procedural and substantive unconscionability” that permeated the entire arbitration agreement. As a result, if Cisco wants to contest Bark’s discrimination claim, it will have to do it in court, where the playing field is much more level. Cisco has said it will appeal.

Kahn’s ruling is a rare setback for arbitration clauses, which have swept across the landscape of commercial litigation like a scourge of locusts. When they bind parties that come to the table with roughly equivalent resources — two companies locked in a contract dispute, say — they can effectively function as a cheap and efficient alternative to the courtroom.

The problems arise when they’re imposed by a stronger party on a weaker one. As we reported previously, it’s a safe bet that many, if not most, individuals forced into arbitration didn’t even know they were subject to the requirement until after their dispute arose. Arbitration clauses are buried in the boilerplate you sign when you enroll with a cable company, go to a doctor or hospital for treatment or take a new job. Arbitration favors the bigger party, in part, because it’s typically an experienced participant in the process and can take better advantage of what are often its very loose standards of evidence and testimony.

One doesn’t have to go further than the Wells Fargo identity theft scandal to see how this works. Wells Fargo bankers, it will be recalled, cheated some customers by fraudulently opening multiple accounts in their names in order to meet stringent productivity quotas. When victims demanded redress, the bank forced many of them into binding arbitration, pointing to an arbitration clause that applied not only to the original legitimate accounts the customers opened, but (according to the bank) any subsequent disputes that arose.

Wells Fargo is so in love with the advantages of arbitration that it’s still insisting on the process, even though it has pledged to do everything in its power to compensate its victims. Because arbitration proceedings typically aren’t matters of public record, this provision arguably allowed the Wells Fargo scandal to continue and grow without public disclosure, until my former Times colleague Scott Reckard exposed it in 2013.

President Obama recognized the implicit abuse of arbitration clauses in employment disputes. In 2014, he mandated by executive order that complaints about workplace discrimination or abuse could be arbitrated only with the consent of the parties after the disputes arise. Surprise arbitration clauses, in other words, are out. The order applies to firms working on federal contracts worth more than $1 million, which is most of them.

Bark says she was the victim of just that sort of hit-and-run arbitration clause. According to the lawsuit she filed against Cisco in August, the physicist and engineer joined the company in 1998 when it acquired her then-employer. By then, her résumé included management stints at Digital Equipment Corp. and Comverse Network Systems. All went well at Cisco, she says, until she was transferred to a new manager in 2013. The new manager, she says, appeared to disdain Bark’s work because of her age, and started maneuvers to “position [her] for termination, sabotage her career trajectory and impact her compensation.” These moves cost her more than $100,000 in expected pay.

Bark complained to Cisco’s employee relations department, which she said effectively minimized her complaint. She followed with a complaint to California fair employment officials and then sued.

That’s when Cisco asserted that Bark was obliged to take her age-discrimination complaint to arbitration. The company produced a seven-page, single-spaced form labeled “Proprietary Information and Invention Agreement,” dated Sept. 11, 1998, and bearing her signature. Most of it applies to the safeguarding of company documents and material, including inventions she might develop on its dime. On page 5 is a paragraph requiring that “any and all disputes” concerning employment will be resolved by binding arbitration, for which Bark would have to pay half the costs. Bark acknowledges she signed it because it was a condition of her employment. But since she was in sales and the document applied to intellectual property and inventions, she “did not view it as relevant to my position.”

No one pointed out the arbitration clause, which didn’t stand out in the text. “It was just one more thing I had to complete to stay employed,” she said. According to her lawyer, Charles Louderback, she didn’t recognize that “in fact, she’s signing away her constitutional right to a jury trial.”

Cisco’s position is that Bark’s failure to read what she was signing is her own problem. “Having opted not to read the Agreement,” the company says in court papers, Bark can’t now complain “that she was unduly ‘surprised’ by its contents.” Cisco says it’s not commenting on the case beyond what it has said in court papers.

Judge Kahn didn’t buy the company’s position. In his tentative ruling, published Tuesday, he observed it is a “surprise” to stick an employment arbitration requirement “that appears by its title and the great majority of its contents to be concerned solely with intellectual property issues” and which was wordy, lengthy and dense, to boot. He noted that nothing barred Cisco from pinpointing the arbitration clause or attaching the applicable arbitration rules, making it “much less of a surprise.”

Kahn also pointed out that the fee-splitting requirement violates arbitration rules laid down by the California Supreme Court in 2000. Furthermore, while the agreement forces employees to arbitrate almost all their disputes with Cisco, including employment terms, it exempts claims the company might have against the employee over trade secrets, patents or other intellectual property. That strongly favors the company, he ruled.

“Cisco says, ‘If you have an employment dispute, you have to go to arbitration,’ ” Louderback explains, “ ‘but if we sue you, we get to go to a jury trial.’ ”

Whether Kahn’s ruling will hold up is anyone’s guess. But it’s based on state Supreme Court precedent that sets limits on arbitration. In any event, what may have been Cisco’s dream of an easy win has been dashed. Workers and customers who feel they’ve been abused in arbitration can take heart … for the moment.

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