Plaintiff Stephen Michael Mayers filed a lawsuit against his former employer, Volt Management Corp., and its parent corporation, Volt Information Sciences, Inc. (collectively referred to as defendant), alleging several claims under the California Fair Employment and Housing Act (Gov. Code, § 12940 et seq.) (FEHA). Defendant filed a motion to compel arbitration based on plaintiff's agreement to submit employment-related claims to final and binding arbitration, as evidenced by his signed employment application, employment agreement, and acknowledgment of receipt of the employee handbook. The trial court denied the motion.
Defendant argues the trial court erred because the arbitration provisions were enforceable and did not contain any unconscionable elements. Defendant argues that, in any event, the trial court should have severed any offending provisions and ordered arbitration.
We affirm. The arbitration provisions contained in the employment application, employment agreement, and employee handbook each required that
Under well-established authority, the above discussed arbitration provisions were unconscionable and therefore unenforceable. Because the unconscionable terms cannot be severed from the rest of the arbitration provisions, plaintiff cannot be compelled to arbitrate his claims against defendant.
In December 2010, plaintiff filed a complaint against defendant, alleging claims for disability discrimination (Gov. Code, § 12940, subd. (a)), failure to accommodate (id., § 12940, subd. (m)), failure to engage in the interactive process (id., § 12940, subd. (n)), retaliation for taking leave under the Moore-Brown-Roberti Family Rights Act (Gov. Code, § 12945.2), and age discrimination (Gov. Code, § 12940, subd. (a)).
Defendant filed a motion to compel arbitration of plaintiff's claims and to stay judicial proceedings, "on the ground[] that there is a valid, written arbitration agreement between Plaintiff . . . and [defendant], covering any and all employment related disputes arising out of the conduct of [defendant]." Defendant's motion was supported by the declaration of defendant's vice-president of human resources, Louise Ross. Ross stated: "Based on my understanding, the arbitration provision is a mandatory condition of employment for all [defendant's] employees and [defendant] only accepts candidates for employment who unequivocally accept the terms and conditions contained in the Employment Agreement. It is further my understanding that by executing the Employment Application and Employment Agreement with [defendant] and continuing employment with [defendant], Plaintiff knowingly
In her declaration, Ross authenticated plaintiff's employment application, the employment agreement, and the acknowledgment of receipt of the handbook plaintiff signed along with a copy of defendant's alternative dispute resolution policy. A copy of each document was attached as an exhibit to Ross's declaration.
Plaintiff's employment application stated, in part, that in the event defendant hired plaintiff, certain "terms and conditions" would apply to his employment including the following arbitration provision: "Agreement to arbitrate disputes. Any dispute, controversy or claim arising out of, involving, affecting or related in any way to this agreement or a breach of this agreement, or arising out of, involving, affecting or related in any way to your employment or the conditions of your employment or the termination of your employment, including but not limited to disputes, controversies or claims arising out of or related to the actions of [defendant]'s other employees, under federal, state and/or local laws, shall be resolved by final and binding arbitration, pursuant to the Federal Arbitration Act, in accordance with the applicable rules of the American Arbitration Association in the state where you are or were last employed by [defendant]. The arbitrator shall be entitled to award reasonable attorneys fees and costs to the prevailing party. The award shall be in writing, signed by the arbitrator, and shall provide the reasons for the award. Judgment upon the arbitrator's award may be filed in and enforced by any court having jurisdiction. This agreement to arbitrate disputes does not prevent you from filing a charge or claim with any governmental administrative agency as permitted by applicable law." (Underscoring & some capitalization omitted.)
Plaintiff's employment agreement contained the following arbitration provision set in boldface type: "AGREEMENT TO ARBITRATE DISPUTES. Any dispute, controversy or claim arising out of, involving, affecting or related to this Agreement, or breach of this Agreement, or arising out of, involving, affecting or related in any way to Employee's employment or the
Immediately below the above quoted arbitration provision and immediately above the signature blocks bearing, inter alia, plaintiff's signature, the employment agreement stated in boldface type: "I/WE CERTIFY THAT I/WE HAVE READ THE ABOVE AND THE ADDITIONAL TERMS ON THE REVERSE SIDE AND I/WE AGREE TO ALL TERMS AND CONDITIONS OF THIS AGREEMENT." (Boldface omitted.)
In her declaration, Ross stated that plaintiff was provided the employment agreement with a cover letter dated November 14, 2005. Plaintiff had one week to consider the terms and conditions of the employment agreement and ask any questions about them before he signed the employment agreement. Ross also stated the terms and conditions of the employment agreement, including the mandatory binding arbitration provision, "remained in effect at all material times during [plaintiff's] employment with [defendant]."
Plaintiff signed an acknowledgment of his receipt of defendant's employee handbook. The acknowledgment form stated in part: "I have read, understand and agree to be bound by [defendant]'s Discrimination Complaint Procedures, including Arbitration, and expressly waive my right to sue [defendant], its agents and employees, in court and I agree to submit to final and binding arbitration any dispute, claim or controversy arising between me and [defendant] that I would have been otherwise entitled to file in court."
The employee handbook contained the following alternative dispute resolution provision: "[Defendant] believes that alternative dispute resolution is the
There is no evidence plaintiff was provided a copy of or information about access to the applicable AAA rules referenced in the arbitration provisions. Ross stated in her declaration that if plaintiff had asked for a copy of the rules, defendant would have provided him with a copy.
Plaintiff filed an opposition to the motion to compel arbitration, asserting that "[g]rounds exist for revocation of the agreement to arbitrate the alleged controversy in that the Defendant's Arbitration agreement is illegal under Armendariz v. Foundation Health Psychcare Services, Inc., (2000) 24 Cal.4th 83, 90-91 [99 Cal.Rptr.2d 745, 6 P.3d 669]," and "the Defendant's Arbitration agreement is unconscionable." Plaintiff argued the arbitration provisions were procedurally unconscionable because (1) they were drafted by defendant and presented to plaintiff on a take-it-or-leave-it basis and (2) defendant never gave plaintiff the AAA rules. Plaintiff also argued the arbitration provisions were substantively unconscionable because they contained an "illegal attorney fee provision" and were otherwise overly harsh, oppressive, and one sided.
"We review de novo a trial court's determination of the validity of an agreement to arbitrate when the evidence presented to the trial court was undisputed. [Citations.] We review under the substantial evidence standard the trial court's resolution of disputed facts. [Citation.] `Whether an arbitration provision is unconscionable is ultimately a question of law. [Citations.]' [Citation.]" (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1567 [98 Cal.Rptr.3d 743] (Parada).)
The Supreme Court in AT&T Mobility held that title 9 United States Code section 2, part of the FAA preempts a rule under California law "classifying most collective-arbitration waivers in consumer contracts as unconscionable" (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1746]), because such a rule "`stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress'" (id. at p. ___ [131 S.Ct. at p. 1753]). The Supreme Court explained, "a court may not `rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what . . . the state legislature cannot.'" (Id. at p. ___ [131 S.Ct. at p. 1747].)
In the instant case, plaintiff opposed the motion to compel arbitration by arguing that the specific arbitration provisions before the court contained elements of procedural and substantive unconscionability, which render those elements unconscionable. Plaintiff did not argue the arbitration provisions were unenforceable under California law because they required the arbitration of a particular type of claim. (See AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1747].) Nor has plaintiff based his unconscionability argument "`on the uniqueness of an agreement to arbitrate.'" (Ibid.) We therefore turn to review general principles of unconscionability under California law before applying those principles to the instant arbitration provisions.
Civil Code section 1670.5, subdivision (a) provides: "If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result." Panels of this court in Parada, supra, 176 Cal.App.4th 1554, and Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305 [27 Cal.Rptr.3d 797] (Morris) have provided thorough explanations of California unconscionability law. We do not need to fully restate those explanations here and instead provide the following summary of the law.
Following Morris, supra, 128 Cal.App.4th 1305, and Parada, supra, 176 Cal.App.4th 1554, we consider the extent to which the arbitration provisions here contain elements of procedural and substantive unconscionability in determining their enforceability.
The arbitration provisions, however, required that final and binding arbitration occur in accordance with "the applicable rules of the American Arbitration Association" in the state where plaintiff was employed or last employed by defendant. Defendant did not provide plaintiff a copy of the "applicable rules" or advise plaintiff how he could access that information.
In Trivedi, supra, 189 Cal.App.4th at page 393, the appellate court stated: "Numerous cases have held that the failure to provide a copy of the arbitration rules to which the employee would be bound supported a finding of procedural unconscionability. (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 721 [13 Cal.Rptr.3d 88] . . . [NCR's `employee-dispute resolution policy, known as Addressing Concerns Together (ACT),' incorporated `arbitration rules that were not attached and require[d] the other party to go to another source in order to learn the full ramifications of the arbitration agreement']; Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1406-1407 [7 Cal.Rptr.3d 418]
In Trivedi, supra, 189 Cal.App.4th at pages 390-391, the arbitration provision at issue required that disputes be arbitrated "`pursuant to the AAA's National Rules for the Resolution of Employment Disputes.'" Here, unlike the arbitration provision in Trivedi, the arbitration provisions do not identify the particular set of AAA rules that would apply to the final and binding arbitration of plaintiff's claims. Instead, the arbitration provisions vaguely refer to "the applicable rules of the American Arbitration Association" in the state where plaintiff was last employed by defendant. (See Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 485-486 & fn. 3 [127 Cal.Rptr.3d 461] [noting the failure to provide the applicable AAA rules added to the procedural unconscionability of the arbitration agreement and "[i]f . . . the AAA does not publish rules under the title to which the arbitration agreement refers, the discrepancy would add to the oppressive nature of the agreement"].)
By failing to even identify the set of arbitration rules that would apply to the parties' final and binding arbitration of employment disputes, the arbitration provisions subjected plaintiff to unreasonable surprise and oppression. This aspect of the arbitration provisions is directly at odds with the purpose of the FAA. As explained by the United States Supreme Court, the FAA principally seeks to ensure "`that private arbitration agreements are enforced according to their terms'" (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1748]), and yet, here, defendant has failed to disclose all the terms of such an agreement.
We conclude the arbitration provisions suffer from a high degree of procedural unconscionability because they constituted contracts of adhesion,
As we discussed ante, an arbitration agreement must be found to be both procedurally and substantively unconscionable for it to be deemed unenforceable on unconscionability grounds. "[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 114 (Armendariz).)
The Trivedi court stated: "For these reasons, the high court went on to observe that `the United States Supreme Court has held that, in a Title VII case, a prevailing plaintiff should ordinarily recover attorney fees unless special circumstances would render the award unjust, whereas a prevailing defendant may recover attorney fees only when the plaintiff's action was frivolous, unreasonable, without foundation, or brought in bad faith. [Citation.] California courts have adopted this rule for attorney fee awards under the FEHA. [Citations.]' [Citation.] [¶] The arbitration clause in the parties' employment contract, to the contrary, allows for the recovery of attorney fees and costs by the prevailing party in an arbitration. In contrast to case law under FEHA, the agreement does not limit [the defendant]'s right to recover to instances where [the plaintiff]'s claims are found to be `frivolous, unreasonable, without foundation, or brought in bad faith.' Thus, enforcing the arbitration clause and compelling [the plaintiff] to arbitrate his FEHA claims lessens his incentive to pursue claims deemed important to the public interest, and weakens the legal protection provided to plaintiffs who bring nonfrivolous actions from being assessed fees and costs." (Trivedi, supra, 189 Cal.App.4th at pp. 394-395.)
Here, the arbitration provisions unambiguously state, without explanation or qualification, that the "arbitrator shall be entitled to award reasonable attorney[] fees and costs to the prevailing party." The only reasonable interpretation of this statement is that the arbitrator is empowered to award reasonable attorney fees and costs to the prevailing party as to any and all claims, including claims brought under the FEHA.
We conclude the prevailing party attorney fees term therefore injects a high degree of substantive unconscionability into the arbitration provisions defendant seeks to enforce.
At oral argument and in his appellate brief, plaintiff argued the employment agreement is also substantively unconscionable because it contains a "one-sided" injunctive relief provision that was "virtually identical" to the
In any event, the injunctive relief provision contained in the employment agreement here is not virtually identical to the injunctive relief provision at issue in Trivedi. In Trivedi, supra, 189 Cal.App.4th at page 396, the arbitration agreement contained an injunctive relief provision which stated in part: "`[P]rovisional injunctive relief may, but need not, be sought in a court of law while arbitration proceedings are pending, and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the Arbitrator.'" (Italics added.) The appellate court concluded this provision was unconscionable because "allowing the parties access to the courts only for injunctive relief favors [the employer], because it is `more likely that [the defendant], as the employer, would seek injunctive relief.'" (Id. at p. 397.)
The injunctive relief provision in the employment agreement in the instant case does not expressly allow any party the right to seek injunctive relief in court. The injunctive relief provision states in full: "The parties hereto recognize that irreparable damage will result to [defendant], its business and properties if Employee fails or refuses to perform Employee's obligations under this Agreement, and that the remedy at law for any such failure o[r] refusal will be inadequate. Accordingly, in addition to any other remedies and damages available, including the provision contained in Paragraph 7 for arbitration (none of which remedies or damages is hereby waived), [defendant] shall be entitled to injunctive relief and Employee may be specifically compelled to perform Employee's obligations under this Agreement. The institution of an arbitration proceeding shall not bar injunctive relief pending the final determination of the arbitration proceedings hereunder."
We do not need to decide whether the injunctive relief provision impliedly authorizes a party to seek injunctive relief in court, or the degree to which it might be unconscionable, in light of the high degree of both procedural and substantive unconscionability otherwise present in the arbitration provisions, for the reasons discussed ante.
For the reasons we have explained, the arbitration provisions contain a high degree of procedural unconscionability and a high degree of substantive unconscionability. Defendant argues we should sever any parts of the arbitration provisions that we conclude are unenforceable, and compel arbitration.
Defendant filed a petition for rehearing in which it argues we failed to address certain issues raised in this appeal. For the following reasons, defendant's petition is without merit.
Defendant argues we failed to address FAA preemption and the FAA's "mandate that rules related to the formation of ordinary contracts be applied
In part II. of the Discussion ante, we summarize and apply the United States Supreme Court's interpretation of the FAA in AT&T Mobility, supra, 563 U.S. ___ [131 S.Ct. 1740]. For reasons we explain in detail, the Supreme Court expressly recognized that certain agreements to arbitrate may be invalidated by "`generally applicable contract defenses, such as . . . unconscionability.'" (Id. at p. ___ [131 S.Ct. at p. 1746].) In accordance with AT&T Mobility, we explain in detail the reasons for and our analysis of the application of the general principles of unconscionability to the specific arbitration provisions at issue in this case. Our analysis does not "preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives." (Id. at p. ___ [131 S.Ct. at p. 1748].) Quite simply, we scrupulously apply the FAA, as interpreted by the United States Supreme Court in AT&T Mobility, in this case.
Defendant next argues we ignore Asmus v. Pacific Bell (2000) 23 Cal.4th 1 [96 Cal.Rptr.2d 179, 999 P.2d 71] (Asmus) and Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665 [108 Cal.Rptr.3d 171, 229 P.3d 83]. Neither case is applicable.
In Asmus, supra, 23 Cal.4th at page 6, the California Supreme Court held that "[a]n employer may unilaterally terminate a policy that contains a specified condition, if the condition is one of indefinite duration, and the employer effects the change after a reasonable time, on reasonable notice, and without interfering with the employees' vested benefits." The Supreme Court concluded that "the employees accepted the company's modified policy by continuing to work in light of the modification." (Id. at p. 18.) Asmus does not bar consideration whether employment arbitration agreements constitute adhesion contracts or contain unconscionable elements. Asmus did not even address the enforceability of arbitration agreements or the doctrine of unconscionability—the very issues in this case.
In Pearson Dental Supplies, Inc. v. Superior Court, supra, 48 Cal.4th at page 682, the California Supreme Court held: "When an arbitration provision is ambiguous, we will interpret that provision, if reasonable, in a manner that renders it lawful, both because of our public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution, and because of
Defendant also argues we fail to address the trial court's grant of defendant's request for judicial notice of a certain set of AAA rules in ruling on the motion to compel arbitration, which included a rule limiting the arbitrator's authority to award attorney fees and costs "in accordance with applicable law." The grant of judicial notice of a particular set of AAA rules is irrelevant to our determination whether the arbitration provisions contain elements of substantive unconscionability because that set of rules was not included with, attached to, or identified in the arbitration provisions themselves.
The order is affirmed. Respondent shall recover costs on appeal.
Rylaarsdam, Acting P. J., and Aronson, J., concurred.