The panel affirmed the district court’s denial of defendants’ motion to compel arbitration of employment-related claims on the grounds that the delegation clause and arbitration provision in the plaintiff’s contract were unenforceable as unconscionable under California law.
Plaintiff Santiago Lim alleged that he and other delivery drivers signed agreements purporting to classify them as independent contractors, but defendants treated and managed them as employees in violation of California labor laws. Lim’s Independent Contractor Operating Agreement included an arbitration provision.
The panel held that a delegation clause, requiring the arbitrator to determine the gateway issue of arbitrability, was unenforceable as to Lim because it was procedurally and substantively unconscionable. The panel held that the district court properly exercised its discretion by not severing the unconscionable provisions and enforcing what remained of the delegation clause.
The panel held that because the delegation clause was unenforceable, the district court properly proceeded to determine the gateway issue of arbitrability. The panel held that the same bases for concluding that the delegation clause was procedurally and substantively unconscionable—the take-it-or-leave-it circumstances and cost-splitting, fee-shifting, and Texas venue provisions—also rendered the arbitration provision unconscionable. The district court did not err by not severing those same terms and declining to enforce the arbitration provision.