California allows employment disputes to be resolved through arbitration if the employer and employee agree in writing, and the agreement provides essential fairness to the employee. But what if the employment onboarding process involves several agreements, each of which contains an unfair provision?
That was the issue in a case recently decided by the California Court of Appeal (Alberto v Cambrian Homecare).
Jennifer Playu Alberto went to work for Cambrian Homecare in Los Angeles in September of 2019. As part of her orientation, a company representative gave her several agreements to sign.
Three of these related to the resolution of potential disputes: an Arbitration Agreement, a Confidentiality Agreement, and a Confidentiality Agreement Addendum.
The Arbitration Agreement required Ms. Albert to resolve any “claims or controversies” arising from her employment through “final and binding arbitration,” but prohibited either party from maintaining a “class, collective or representative action” without the agreement of the other.
The agreement contained two signature blocks, one for the employee and another for “Paul J. Quiroz” as “Managing Director.” Alberto signed the agreement, but the signature block for Quiroz was left blank.
The Confidentiality Agreement prohibited Alberto from disclosing “trade secrets,” including but not limited to “compensation and salary data and other employee information.” Violating this clause allowed the company to seek “an immediate injunction, without bond, from any court of competent jurisdiction,” and the prevailing party in that lawsuit would be entitled to recover attorney's fees and costs.
The Confidentiality Agreement Addendum required Alberto to keep confidential all employee information, including names and phone numbers. Alberto’s failure to comply would entitle Cambrian to seek “injunctive or equitable relief as well as monetary damages.”
In October of 2020, Alberto filed a lawsuit in Los Angeles Superior Court, alleging multiple wage-and-hour violations. Cambrian asked Alberto to arbitrate her dispute. She refused, and in January of 2021 she amended her complaint to allege that she was an “aggrieved employee” under the Private Attorneys General Act, or PAGA, which would allow her to sue on behalf of other company employees for wage and hour violations.
Cambrian asked the court to compel arbitration and contended that Alberto had waived the right to institute a PAGA action by signing the Arbitration Agreement.
In June of 2021, the trial court denied Cambrian’s petition to compel arbitration. It noted that Cambrian had not met its burden of establishing an arbitration agreement, because the agreement contained a provision requiring both parties to sign it, yet Cambrian’s executive did not.
The trial court also found the arbitration agreement, even if it had been signed, would be unconscionable and therefore unenforceable.
A finding that an agreement is “unconscionable” requires a finding that both “procedural” and “substantive” unconscionability are present.
Procedural unconscionability focuses on “oppression” or “surprise,” due to unequal bargaining power of the parties to the agreement. Such unequal bargaining power is inherent in the employment context but is not fatal to an arbitration agreement, standing alone.
Substantive unconscionability is evaluated by the degree to which the results of the agreement are “one-sided” or “overly harsh” to the employee.
Courts look at both elements, using a sliding scale approach. The more substantively oppressive an agreement is, the less evidence of procedural unconscionability is required for a determination that the agreement is unconscionable, and vice versa.
The trial court found a low degree of procedural unconscionability, inherent in the execution of the employment contracts, but a high degree of substantive unconscionability. It reached this conclusion after finding that all three contracts which Alberto signed were part of the “same transaction,” and each had an unenforceable term in them.
PAGA claims cannot be waived, and the waiver of PAGA claims in the Arbitration Agreement was therefore “unconscionable and against public policy.”
The Confidentiality Agreement’s prohibition on discussing salary information was illegal because it precluded Alberto from exercising a right granted her under the Labor Code; doing so exposed her to potential litigation and liability for attorney’s fees and costs.
The Confidentiality Agreement and its Addendum limited Alberto’s options to arbitration but allowed Cambrian to sue in court – without having to post a bond or demonstrate irreparable injury.
Standing alone, an unfair provision in an employment arbitration agreement might not result in a denial of the right to arbitrate, but multiple unfair provisions in multiple agreements required that conclusion.
Cambrian appealed and argued that, even though parts of the Confidentiality Agreement and Addendum were substantively unconscionable, that agreement was separate from the Arbitration Agreement.
The appellate justices disagreed. All three documents were executed on the same day, and all had to do with Alberto’s hiring and how to resolve employment-related disputes.
The trial court’s rulings on the unconscionability of the clauses related to potential litigation and costs, discussion of wages, and waiver of PAGA were all correct, the justices said. The presence of multiple unfair provisions precluded severing the unconscionable clauses in order to enforce the agreement to arbitrate.
The justices affirmed the trial court’s order denying arbitration and awarded Alberto her costs on appeal.
By David Krol