Leasa Compton appeals from the order granting the petition by her former employer, American Management Services, LLC, to compel arbitration of Compton's class action complaint for violations of Labor Code provisions governing the payment of wages. Treating her appeal from this nonappealable order as a petition for writ of mandate, we conclude that the arbitration agreement she signed as a condition of obtaining employment was unconscionable. We therefore reverse the trial court's order granting the petition to compel arbitration and direct the trial court to enter a new order denying the petition.
In February 2006, Leasa Compton applied for the job of property manager with American Management Services, California, Inc.
In October 2010 Compton filed a class action complaint against AMS in superior court, alleging that AMS violated various Labor Code provisions governing the payment of minimum and overtime wages, rest and meal breaks, and reimbursement of expenses. AMS removed the action to the federal district court in November 2010, and filed an answer in December 2010 that did not raise arbitration as an affirmative defense. AMS then propounded special interrogatories on Compton, which she never answered because the district court remanded the action to state court in February 2010.
After remand to the superior court, AMS propounded more discovery requests, including form and special interrogatories, document production requests, and requests for admission. Compton objected to nearly all these discovery requests and provided few substantive responses. On April 27, 2011, the United States Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [179 L.Ed.2d 742, 131 S.Ct. 1740] (Concepcion), which overruled the California Supreme Court's decision in Discover Bank v. Superior Court (2005) 36 Cal.4th 148 [30 Cal.Rptr.3d 76, 113 P.3d 1100] (Discover Bank). The Discover Bank court had held that provisions in certain consumer contracts of adhesion that barred arbitration or litigation of classwide claims were unconscionable and therefore unenforceable. Concepcion held that for consumer contracts with arbitration provisions subject to the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA), the mere presence of a ban on class-wide claims did not render such provisions unenforceable.
Five days after Concepcion was decided, counsel for AMS sent Compton's counsel a copy of the arbitration agreement Compton had signed. During May of 2011, counsel for AMS exchanged e-mails with Compton's lawyers, contending that Concepcion had changed the law in a way that removed the obstacles to arbitration that Discover Bank had erected. When Compton refused to submit her individual dispute, and not class claims, to arbitration, AMS filed a petition to compel arbitration in July 2011.
AMS's petition to compel arbitration was predicated on the theory that the California Supreme Court's decisions in Discover Bank and Gentry v. Superior Court (2007) 42 Cal.4th 443 [64 Cal.Rptr.3d 773, 165 P.3d 556] (Gentry) had
Job applicants at AMS were provided with an eight-page arbitration agreement stating in short that no application would be considered until the applicant agreed to be bound by the company's arbitration program. The agreement said that AMS "has implemented an arbitration procedure to provide quick, fair, final and binding resolution of employment-related legal claims." Prospective employees signing the agreement had three days to withdraw their consent in writing by stating that they no longer sought employment with AMS. The agreement said that applicants had to read and sign the agreement, and that their signature would also acknowledge receipt of arbitration rules, which were provided in a separate document. The agreement stated that applicants should familiarize themselves with the rules, and that they were allowed to take the agreement and rules with them, and could then sign and return them at a later date if they wished.
The agreement also said that the applicant would submit to arbitration any and all claims arising out of his employment with AMS, and then listed by way of example claims arising under common law or federal, state, and local statutes, including age discrimination, civil rights, and disability protection statutes. AMS stated that it would also arbitrate such claims.
The arbitration rules specified which claims were, or were not, subject to arbitration: "Except as otherwise limited herein, any and all employment-related legal disputes, controversies, or claims arising out of, or relating to, an Employee's application or candidacy for employment ... with [AMS] shall be settled exclusively by final and binding arbitration before a neutral, third-party Arbitrator selected in accordance with these [rules]. Arbitration shall apply to any and all such disputes, controversies or claims whether
The next paragraph describes without limitation the types of claims that were subject to arbitration. These included claims under "the Age Discrimination in Employment Act (ADEA) ..., Title VII of the Civil Rights Act of 1964, as amended, including the amendments of the Civil Rights Act of 1991, the Americans With Disabilities Act (ADA), the Fair Labor Standards Act (FLSA), 42 U.S.C. [section] 1981, ... the Employee Polygraph Protection Act, the Employee Retirement Income Security Act (ERISA), state discrimination statutes, and/or common law regulating employment termination. This also includes any claim you may have under contract or tort law; including, but not limited to, claims for malicious prosecution, sexual harassment, wrongful discharge, wrongful arrest/wrongful imprisonment, intentional/negligent infliction of emotional distress or defamation."
The next paragraph specifies those claims not covered by the arbitration agreement: "Claims by Employees for state employment insurance (e.g., unemployment compensation, workers' compensation, worker disability compensation) are not subject to arbitration. Claims still may be filed with administrative agencies such as the National Labor Relations Board, the Equal Employment Opportunity Commission or the appropriate state agency. However, participants in the [arbitration program] may not bring or participate in any lawsuit arising out of such a claim. Likewise, if the Equal Employment Opportunity Commission or some other administrative agency files a lawsuit in the courts against [AMS], the Employee cannot participate in the lawsuit as a party. Instead, as stated above, the Employee must pursue any and all personal claims against [AMS] through arbitration. Statutory or common law claims raised by Employees alleging that [AMS] retaliated or discriminated against an Employee for filing an administrative claim or for participating in such a claim in any manner shall also be subject to arbitration.
"Not subject to arbitration are claims by [AMS] for injunctive and/or equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information. The Employee acknowledges and agrees that [AMS] may seek and obtain relief from a court of competent jurisdiction."
Unless all parties consent in writing, "the Arbitrator shall not consolidate claims of different employees into one proceeding. Each arbitration proceeding shall cover the claims of only one Employee. Unless the parties mutually agree, the ... arbitrator has no authority to adjudicate a `class action.'"
Under the arbitration rules, AMS and the employee participate equally in the selection of a neutral arbitrator. The arbitration rules provide for discovery, limiting the parties to one set of 20 interrogatories, including subparts, and three depositions. The arbitrator has discretion to permit additional discovery upon a showing of substantial need, so long as the extra discovery is not overly burdensome or causes undue delay. The arbitrator must issue a written decision that briefly states the reasons for his award. AMS will advance the costs of arbitration, and the employee's share of the costs may not exceed $100. The arbitrator has the authority to award attorney fees in accordance with applicable law. If no award is made, each party bears its own legal costs. The award is final and binding as to both parties, but either party may appeal the arbitrator's decision in accordance with the FAA.
The arbitration agreement and rules were formatted legibly, in an easy-to-read font size, with provisions separated into paragraphs and arranged by subheadings.
As part of its petition to compel arbitration, AMS submitted the declaration of its lawyers, along with supporting evidence, concerning its contact with counsel for Compton regarding arbitration in the days and weeks after Concepcion was decided. In order to support its claim that the arbitration
Compton submitted an opposition declaration that described how she was presented with the arbitration agreement and rules. According to Compton, when she applied for a job with AMS, she met with Paula Palento, who Compton believed was an administrative assistant for the company. Palento provided Compton "with approximately twenty ... standard employment forms to sign at that time. I was required to sign all of these forms in her presence, and was given no time to review any of these forms because she was in a hurry to have them signed and submitted to corporate. So, I could not take the time to read these forms, they were not explained to me, and I was not able to ask questions about any of these forms. I now understand that, among those many forms Ms. Palento put in front of me, was a document that [AMS] is now saying requires me to agree to arbitrate...."
Compton declared that nobody at AMS either called her attention to the arbitration agreement or explained the agreement to her before requiring her to sign it. She was not told that she was free to reject the terms of the arbitration agreement, and was not allowed or given the chance to negotiate or change the terms before signing. She "felt compelled to sign the form because it was given to me along with all of the other required forms for employment with [AMS] and I felt that failing to sign the form might prevent me from getting the job at [AMS]." According to Compton's declaration, she was not fully aware of her legal rights should there ever be a dispute with AMS, and did not know she was waiving her right to sue AMS in court if need be. Had she known, Compton stated, she would not have signed the agreement.
In its reply points and authorities, AMS did not respond to Compton's declaration. Instead, it submitted only the declaration of counsel and supporting exhibits in connection with its argument that Compton had not been prejudiced by any delay in demanding arbitration because her discovery responses consisted of mostly objections and a few insufficient answers.
After hearing argument and taking the matter under submission, the trial court issued a written ruling that granted AMS's petition to compel arbitration. The trial court first found that AMS had not waived its right to arbitrate because, until Concepcion was decided, Discover Bank and Gentry both held "that an arbitration agreement with a class action waiver cannot be compelled into arbitration."
The trial court also found that the arbitration agreement was not unconscionable. Relying on Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105 [88 Cal.Rptr.2d 664] (Lagatree), the trial court rejected Compton's contention that the agreement was procedurally unconscionable because it was presented on a "take it or leave it" basis. This finding also relied on provisions in the agreement that described the terms, gave her the opportunity to seek independent advice, and incorporate "standard arbitration rules and procedures ...." The trial court also rejected Compton's contention that the agreement was substantively unconscionable because its allowance for litigation by AMS in some circumstances was one-sided. According to the trial court, these concerns were "largely hypothetical, because none of the excluded areas have any bearing on her rights or claims in this case. To the extent [Compton] is concerned about some form of equitable or injunctive relief, it is permitted as an adjunct remedy under [Code of Civil Procedure section] 1281.8."
Compton contends that we should reverse the trial court's order for three reasons: (1) a recent decision of the National Labor Relations Board finds that the ability to bring class actions or arbitrations is a protected concerted activity under federal labor law, which takes precedence over Concepcion — which was a consumer contracts case — and the FAA; (2) AMS waived its right to compel arbitration; and (3) the arbitration agreement is unenforceable
The element of substantive unconscionability involves an inquiry into whether the contract terms are unfairly one-sided. (Gentry, supra, 42 Cal.4th at p. 479.) The AMS arbitration agreement meets this test.
Stirlen was approved by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 [99 Cal.Rptr.2d 745, 6 P.3d 669] (Armendariz), which reversed the Court of Appeal and affirmed a trial court ruling denying an employer's petition to compel arbitration of sex discrimination claims brought by two plaintiffs. The arbitration provision was deemed unilateral because it applied to claims only by employees. (Id. at pp. 115, 120-121.)
Armendariz was applied in Mercuro v. Superior Court (2002) 96 Cal.App.4th 167 [116 Cal.Rptr.2d 671] (Mercuro), where the Court of Appeal reversed a trial court order compelling arbitration of a former employee's action for wrongful termination, fraud, and age and disability discrimination because the arbitration agreement was unconscionable. The arbitration provision in Mercuro, much like the one we consider here, required employees to arbitrate common law contract and tort claims, statutory discrimination claims, and claims for violation of any federal, state, or local statutes, ordinances, and regulations. Also very much like the agreement at issue here, the Mercuro arbitration agreement excluded employee workers' compensation and unemployment benefits claims, and employer claims for injunctive and equitable relief for intellectual property violations, unfair competition, and the unauthorized use or disclosure of trade secrets or confidential information.
The same rationale was applied again in Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 724-726 [13 Cal.Rptr.3d 88] (Fitz), where the arbitration provision excluded employee claims for workers' compensation and unemployment benefits, along with employer claims concerning confidentiality and noncompetition agreements or intellectual property rights. This court also adopted the Armendariz line of reasoning in Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 114-115 [12 Cal.Rptr.3d 663] (Martinez), holding that an arbitration provision very similar to the AMS arbitration agreement was unconscionably one-sided.
This line of reasoning was used most recently in Samaniego v. Empire Today, LLC, supra, 205 Cal.App.4th 1138 (Samaniego). The plaintiffs were carpet installers who brought a class action alleging that they had been misclassified as independent contractors instead of employees, and stated causes of action for multiple Labor Code violations, including the payment of minimum and overtime wages, meal break violations, and failure to pay employee expenses. The employer petitioned to compel arbitration based on an arbitration provision in an agreement that the installers were required to sign after being hired but before starting work.
The Samaniego court first determined that the arbitration provision was procedurally unconscionable because the employment agreement was presented in English but the plaintiffs spoke only Spanish; the agreement was 11 pages of densely worded, single-spaced text that lacked individual headings; the arbitration provision was the 36th of 37 provisions; although the arbitration provision stated that the rules of the American Arbitration Association applied, copies of those rules were not provided; and the agreement was an adhesion contract that the plaintiffs were required to sign as a condition of employment. (Samaniego, supra, 205 Cal.App.4th at pp. 1145-1146.)
Substantive unconscionability was strongly indicated, the Samaniego court held, because it included several one-sided provisions: (1) it imposed a six-month limitation period on demanding arbitration, while the Labor Code provided a three-year limitations period for those claims; (2) the agreement unilaterally required the plaintiffs to pay any attorney fees the employer might incur to enforce its rights; and (3) the agreement declared that all claims for declaratory relief or preliminary injunctive relief were excluded from arbitration, but such claims were typically brought by employers to protect their proprietary information or enforce noncompetition provisions. (Samaniego, supra, 205 Cal.App.4th at pp. 1147-1148.)
Second, the one-year time limit to demand arbitration is substantially shorter than the statutory limitations period for many claims covered by the agreement. For instance, under the California Fair Employment and Housing Act (Gov. Code, § 12900 et seq.; FEHA) an administrative complaint alleging unlawful discrimination must be filed with the state's Department of Fair Employment and Housing within one year of the date of the alleged discriminatory action. (Gov. Code, § 12960, subd. (d).) If the department decides not to pursue the matter, it must issue a right-to-sue letter no later than one year after a complaint is filed. (Gov. Code, § 12965, subd. (b).) The complainant then has one year from the date of that letter to file a civil action. (Id., subd. (d)(2); Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, 671, fn. 1 [108 Cal.Rptr.3d 171, 229 P.3d 83].) Under the AMS arbitration agreement, however, even though employees may pursue an administrative claim, they still must demand arbitration within one year of the alleged discriminatory act, which is one-third the time potentially available under FEHA. The statute of limitations for pension and health benefit actions under the Employee Retirement Income Security Act of 1974 (ERISA; 29 U.S.C. § 1001 et seq.) is four years. (Blue Shield of California Life & Health Ins. Co. v. Superior Court (2011) 192 Cal.App.4th 727, 733-734 [120 Cal.Rptr.3d 713].) Statutory wage claims pursuant to the Labor Code are subject to a three-year limitations period (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1102-1103 [56 Cal.Rptr.3d 880, 155 P.3d 284]), and unfair competition claims based on such violations are governed by a four-year limitations period (Bus. & Prof. Code, § 17208; Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178-179 [96 Cal.Rptr.2d 518, 999 P.2d 706]). The statutory limitations period for fraud claims is three years from discovery. (Code Civ. Proc., § 338, subd. (d).) The limitations period for breach of contract claims is two years for oral contracts (Code Civ. Proc., § 339, subd. 1), and four years for written contracts (Code Civ. Proc., § 337, subd. 1).
Assuming for discussion's sake that the attorney fee provision is not discretionary, under Stirlen, Mercuro, Fitz, and Samaniego, the combined result of the other terms is an arbitration provision that imparts a veneer of bilaterality by excluding from arbitration workers' compensation, disability, and unemployment benefits claims, which have their own adjudicatory systems and are not proper subjects of arbitration. Once that veneer is stripped away, what remains is a one-sided provision that requires employees to arbitrate those claims most important to them within a much-shortened limitations period, while leaving AMS free to litigate those claims most important to employers within the far longer statutory limitations periods.
AMS contends that its arbitration agreement is not substantively unconscionable because (1) the bilaterality principle employed in Armendariz and its progeny imposes standards for arbitration agreements more rigorous than those applicable to contracts in general, and therefore violates Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740]; (2) Mercuro cited no authority for its conclusion that an arbitration agreement's purported exemption for workers' compensation, disability, and unemployment claims does not make the agreement bilateral because those claims are subject to separate adjudicatory systems; (3) although AMS carved out for itself the right to litigate claims for injunctive and equitable relief for trade secrets and unfair competition law violations, those remedies are available anyway under the CAA; (4) Mercuro was based in part on the existence of extreme procedural unconscionability, which is absent here; (5) the retention by AMS of the right to litigate injunctive and equitable relief claims under the trade secrets and unfair competition laws is justified under the "business realities" exception allowed in Stirlen and Armendariz because, as a practical matter, such claims require the addition of a new party — the former employee's new employer — who is not subject to the arbitration agreement, thereby posing a risk of duplicative actions; (6) employees are afforded a one-year limitations period under the AMS arbitration agreement, while the decisions which have found shortened limitations periods substantively unconscionable involved contractual six-month limitations periods and relied on other indicia of one-sidedness not present here — the imposition of costs on employees they would not have to bear in a court action; and (7) the exemption for AMS's injunctive and equitable relief claims can be severed, thereby eliminating any unconscionability.
As discussed earlier, Discover Bank, supra, 36 Cal.4th 148, held that class action waivers in a limited class of consumer contracts of adhesion were per se unconscionable in settings involving a scheme to defraud large numbers of consumers out of individually small sums of money because such waivers had the practical effect of exempting the wrongful party from responsibility for its willful misconduct. (Id. at p. 162.) Discover Bank v. Superior Court, supra, 36 Cal.4th 148 was expressly overruled by Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1747] on the ground that it conflicted with the FAA. Even though Discover Bank involved the application of a standard
The Discover Bank rule regarding class actions similarly interfered with arbitration, the Concepcion court held. While the rule did not require classwide arbitration, it allowed any party to a consumer contract to demand it after the fact. (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1750].) Although parties to an arbitration agreement are free to provide for classwide proceedings, such proceedings are generally unsuited to arbitration because they make it more time consuming, expensive, and formal. Imposing them on the parties when not provided for by their arbitration agreement was therefore inconsistent with the FAA's policy of enforcing arbitration agreements according to their terms. (Concepcion, supra, 563 U.S. at pp. ___ - ___ [131 S.Ct. at pp. 1750-1753].)
AMS contends that the rule of one-sidedness as applied by Armendariz, Mercuro, Samaniego, and the other decisions we have discussed violates Concepcion because a lack of perfect mutuality of obligation is not generally grounds to invalidate a contract under California law. As a result, AMS argues, those decisions impose on arbitration agreements a degree of mutuality above and beyond what is ordinarily required for contracts generally, and hence do not come within the FAA section 2 savings clause.
Armendariz then rejected the notion that enforcing this bilaterality rule singled out arbitration agreements for suspect status in contravention of the FAA. Agreeing with the court in Stirlen, supra, 51 Cal.App.4th at page 1551, the Armendariz court said, "the ordinary principles of unconscionability may manifest themselves in forms peculiar to the arbitration context. One such form is an agreement requiring arbitration only for the claims of the weaker party but a choice of forums for the claims of the stronger party. The application of this principle to arbitration does not disfavor arbitration." (Armendariz, supra, 24 Cal.4th at p. 119.)
Post-Concepcion decisions are in accord. Natalini v. Import Motors, Inc. (2013) 213 Cal.App.4th 587 [153 Cal.Rptr.3d 224], involved an arbitration provision in a consumer contract of adhesion. Pointing to decisions by both the federal district courts and the California appellate courts, the Natalini court held that Armendariz's bilaterality analysis was a generally applicable doctrine of contract law that was not affected by Concepcion. (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1747]; Truly Nolen of America v.
Concepcion did not discuss the modicum of bilaterality standard adopted by Armendariz, which is not a class action case. And Concepcion did not overrule Armendariz. We both agree with and are therefore bound to follow our Supreme Court and apply Armendariz to this case. (Truly Nolen of America v. Superior Court, supra, 208 Cal.App.4th at p. 507.) Accordingly, we conclude that Concepcion does not apply to invalidate Armendariz's modicum of bilaterality rule, at least in this context.
As noted, Discover Bank announced a per se rule of unconscionability as to class action waivers in consumer adhesion contracts where it was alleged the seller had cheated many consumers out of small sums of money. Concepcion held that the Discover Bank rule was inimical to arbitration, and was therefore inconsistent with the FAA, because it required parties to an arbitration agreement to arbitrate class claims even when the agreement specifically excluded such claims. That is not remotely analogous to the issue raised here. If anything, the rule of bilaterality as we apply it here promotes arbitration because its chief complaint is that the party with superior bargaining strength has excluded certain claims from the arbitration process. Furthermore, our holding is based on other forms of one-sidedness: AMS's requirement that employees arbitrate virtually all meaningful claims while excluding from arbitration the claims most significant to AMS; the shortened limitations period applicable to employee's claims; and AMS's retention of the longer limitations periods for its claims that are excluded from arbitration.
We therefore reject AMS's contention that we will violate Concepcion by concluding that its arbitration agreement was unconscionable on this ground.
AMS contends that Mercuro's holding that allowing workers' compensation, state unemployment compensation, and state unemployment disability
Mercuro cited Labor Code section 5300 and Unemployment Insurance Code section 1951 as general support for its statement that workers' compensation and unemployment benefits claims were not proper subject matters for arbitration. (Mercuro, supra, 96 Cal.App.4th at p. 176, fn. 12.) Labor Code section 5300 provides that exclusive jurisdiction of workers' compensation claims rests with the Workers' Compensation Appeals Board. Unemployment Insurance Code section 1951 states that hearings on unemployment compensation and disability claims must be held in accordance with rules prescribed by the California Unemployment Compensation Appeals Board. While Mercuro did cite statutory authority for this statement, however, we do not consider this authority conclusive.
Nothing in the record shows that AMS has relinquished any advantage by allowing its employees to pursue their workers' and unemployment compensation claims through their applicable adjudicatory agencies. Eligibility and benefits under these statutory regimes depends on the application of administrative criteria and expertise. Liability is limited by formulas established by statute or administrative regulations, and is covered by employer-funded insurance, either alone or in combination with employee-funded contributions to each program.
Because most arbitrators presumably lack the expertise required to conduct such hearings, arbitration would not necessarily make those proceedings more
AMS contends that its exemption from arbitration of trade secrets and unfair competition injunctive and equitable relief claims is essentially meaningless because those remedies would be available to it even if those employer claims were subject to arbitration. We disagree.
The injunctive relief authorized under this section is designed to provide only interim relief by preserving the status quo pending the outcome of the arbitration. (Jay Bharat Developers, Inc. v. Minidis (2008) 167 Cal.App.4th 437, 446-447 [84 Cal.Rptr.3d 267].) Only those remedies specifically mentioned are allowed under Code of Civil Procedure section 1281.8. (Manhattan Loft, LLC v. Mercury Liquors, Inc. (2009) 173 Cal.App.4th 1040, 1054 [93 Cal.Rptr.3d 457].) Therefore, the only injunctive relief AMS could seek under this provision is an interim order to maintain the status quo until the arbitrator decided the matter. However, the AMS arbitration provision is not limited to interim injunctive relief. Instead, it permits AMS to seek injunctive relief without restriction, including final injunctive relief.
AMS is therefore wrong when it contends that its ability to litigate claims for injunctive and equitable relief for violations of the trade secrets or unfair competition laws is essentially meaningless in regard to our bilaterality analysis because it could do so even if those claims were covered by its arbitration agreement.
AMS contends that Mercuro, supra, 96 Cal.App.4th 167 is not applicable because in that case the arbitration agreement involved extreme procedural and substantive unconscionability, including a threat to the employee's livelihood and the failure to provide for a neutral arbitrator. Among the reasons the Mercuro court found the arbitration agreement procedurally unconscionable was the fact that the plaintiff was told that if he did not sign, he would be stripped of his sales accounts and forced out of the company. (Id. at pp. 174-175.) While less torque was applied to Compton in this case, as we discuss in part 4., post, there was ample evidence that significant procedural unconscionability was employed to obtain her signature on the arbitration agreement.
While the arbitration agreement's failure to provide for a neutral arbitrator formed part of the basis for Mercuro's conclusion that the agreement was also substantively unconscionable, as we have already discussed, there are other indicia of substantive unconscionability in this case that were not present in Mercuro, including the disparity in limitations periods applicable to AMS's arbitration-exempt claims and the greatly reduced limitations period for employee claims. Each case turns on its own unique circumstances, and the circumstances present here convince us that the arbitration agreement is unconscionable.
AMS contends in its supplemental appellate brief that it qualifies for this business realities exception. According to AMS, in order to achieve complete and effective relief for any trade secrets or unfair competition law violations, it might have to proceed against not just its former employee, but that person's new employer as well. Because the new employer would not be a signatory to the arbitration agreement (see Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1512-1514 [105 Cal.Rptr.3d 585]), it would not be subject to arbitration, compelling AMS to seek twin-track relief — one by way of arbitration against its former employee, the other by suing the new employer in court. The result would be a waste of time and money with the potential for inconsistent outcomes, AMS contends.
However, this business reality is not spelled out in the arbitration agreement and was not raised as an issue before the trial court by way of either argument or evidence. We therefore reject the contention. (Stirlen, supra, 51 Cal.App.4th at pp. 1536-1537.)
AMS contends that the one-year limitations period in its arbitration agreement is not sufficient grounds for deeming the agreement unconscionable because in decisions such as Samaniego, supra, 205 Cal.App.4th 1138, Martinez, supra, 118 Cal.App.4th at page 114, and Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242 [123 Cal.Rptr.3d 1] (Wherry), substantive unconscionability was deemed present where the arbitration provisions had an even shorter limitation period of six months and also shifted to employees costs not ordinarily borne in judicial proceedings.
These differences do not preclude us from concluding that a one-year limitations period contributes to the unconscionability of the AMS arbitration
In Martinez, we held that severance was not proper because the arbitration agreement included several serious defects, including the shortened limitations period, cost-shifting provisions that burdened employees, and the exemption from arbitration of the employer's claims for injunctive and equitable relief in trade secrets cases. These multiple defects showed a systematic effort to impose arbitration on employees as an inferior forum that worked to the employer's advantage. As a result, the agreement was permeated by unconscionability and severance was not possible. (Martinez, supra,
Despite Compton's contention that the AMS arbitration agreement was presented on a take-it-or-leave-it basis, the trial court found the agreement was not procedurally unconscionable for two reasons: First, relying on Lagatree, supra, 74 Cal.App.4th at page 1127, the court said that argument had been rejected by the courts; second, the employment application "prominently described the arbitration provisions, gave her the opportunity to seek independent advice, and incorporated standard arbitration rules and procedures." We believe the trial court misread Lagatree, ignored the effect of Compton's undisputed declaration concerning the manner in which the agreement and rules were presented to her, and overlooked certain portions of both the agreement and the rules.
The plaintiff in Lagatree sued his former employers for wrongful termination in violation of public policy when he was fired for refusing to sign an agreement to arbitrate most employment-related disputes. The plaintiff contended that the employers' conduct violated the public policy embodied in the constitutional rights to have a jury trial in court. The trial court sustained without leave to amend demurrers to the complaint on the ground that firing an employee who refused to sign such an agreement did not violate a public policy.
None of the decisions cited by the Lagatree court contained other indicia of procedural unconscionability, and none involved provisions that were substantively unconscionable. It was in this context that the Lagatree court
We begin with Compton's declaration concerning the circumstances under which she was presented with, and required to sign, the arbitration agreement. Because AMS never submitted a declaration or other evidence disputing Compton's description, we accept her version of events. (Wherry, supra, 192 Cal.App.4th at p. 1247.) According to Compton, the arbitration agreement was one of 20 form documents she was given by administrative assistant Paula Palento when she applied at AMS. Compton was not told that one of those was an arbitration agreement, nobody explained any of the forms to her, she was told to sign the forms in Palento's presence, and she was not given time to read any of the forms because Palento was in a hurry to have them signed. In short, no matter how conspicuous the arbitration agreement's terms and advisements, AMS's conduct when presenting the agreement to Compton rendered them nearly meaningless. These circumstances show strong evidence of procedural unconscionability by way of oppression. (Wherry, supra, 192 Cal.App.4th at pp. 1246-1248.)
Next, Gentry held that the employer's failure to adequately describe and fairly portray the shortcomings of its arbitration agreement also showed procedural unconscionability. Although the arbitration handbook that was provided to employees noted certain disadvantages to arbitration, including loss of the right to a jury trial and the allowance of limited discovery, the handbook was still "markedly one-sided." (Gentry, supra, 42 Cal.4th at p. 470.)
Apart from alluding to some shortcomings of arbitration in a general sense, it failed to mention any of the "additional significant disadvantages that this particular arbitration agreement had compared to litigation." (Gentry, supra, 42 Cal.4th at p. 470, original italics.) These included the one-year limitations period for demanding arbitration of covered claims, as opposed to the three- and four-year limitations period available for Labor Code wage violations and
Likewise here, the AMS arbitration agreement and rules were misleading and provided a one-sided picture of the arbitration process. No mention was made of the longer limitations periods applicable to many of the claims covered by the agreement. Nor did the agreement or rules advise prospective employees that AMS still had the longer statutory limitations periods available should it sue for injunctive or equitable relief. Instead, rule 1 states that the arbitration program "applies equally to, and is binding on, both [AMS] and to Employees." Therefore, just as in Gentry, the misleading nature of the agreement and rules provides yet another indicia of procedural unconscionability.
Finally, the employer's failure to provide the employee with a copy of the arbitration rules to which the employee would be bound supports a finding of procedural unconscionability. (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393 [116 Cal.Rptr.3d 804].) It is true that Compton received a copy of AMS's arbitration rules. However, rule 5 of those rules states that an arbitrator will be selected from either the American Arbitration Association or from JAMS and that "the Arbitration shall go forward in accordance with the rules of [the applicable agency] except as otherwise defined herein." AMS does not contend, and the record does not show, that the rules of either agency were provided to Compton.
For the reasons set forth above, we treat this purported appeal as a petition for writ of mandate. We grant that writ, and direct the trial court to reverse its order compelling arbitration of Compton's action, and to enter a new and different order denying that petition. Compton shall recover her appellate costs.
Flier, J., concurred.
I respectfully dissent.
I would not treat Compton's appeal as a petition for writ of mandate, but would address the appeal under the so-called "death knell doctrine." Compton challenges an order that compels her to arbitrate her individual wage claims, and enforces a waiver of class claims in arbitration in accord with the provisions of the arbitration agreement that she signed. The trial court ruled the arbitration agreement, including the waiver of class claims in arbitration, was not unconscionable. Thus, class claims are not arbitrable because the trial court enforced the class claim waiver as to Compton, and any employee who tries to pursue class claims in court will likewise be limited to individual arbitration. The order effectively terminates class claims and sounds the death knell for such claims, allowing an appeal. (In re Baycol Cases I & II (2011) 51 Cal.4th 751, 758 [122 Cal.Rptr.3d 153, 248 P.3d 681].)
The majority concludes that the arbitration agreement between Compton and American Management Services, LLC, is so "tainted with illegality" as to render it wholly unenforceable. (Maj. opn., ante, at p. 900.) In coming to this
In Armendariz, the California Supreme Court ruled that an employment arbitration agreement could not be enforced because it was unconscionable. In reaching its conclusion, the Supreme Court noted that four elements must be included in an employment arbitration agreement to assure it is not unconscionable: (1) the agreement may not limit statutorily available remedies; (2) the agreement must allow for adequate discovery; (3) the agreement must provide for a written award and judicial review; and (4) the employee may not be compelled to pay unreasonable costs and fees. (Armendariz, supra, 24 Cal.4th at pp. 103-113.) The Supreme Court found the arbitration agreement at issue in Armendariz did not satisfy these requirements. (Id. at pp. 113-127.)
The majority discounts that the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [179 L.Ed.2d 742, 131 S.Ct. 1740] (Concepcion) affects the unconscionability analysis. In my view, our state's unconscionability jurisprudence must now be viewed through the lens of Concepcion. In Concepcion, the United States Supreme Court identified two situations in which the Federal Arbitration Act (9 U.S.C. § 1 et seq.) will preempt state arbitration law. The first situation is easily identified — when state law openly prohibits arbitration of a particular type of claim outright, the state law is preempted by the Federal Arbitration Act. (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1747].) The second concerns whether the Federal Arbitration Act preempts generally applicable state contract law doctrines. Specifically, the issue in Concepcion and in Compton's current case is whether the Federal Arbitration Act allows a state's law concerning unconscionability to be applied. (Concepcion, at p. ___ [131 S.Ct. at p. 1747].) In the situation implicating a state's general contract law, a state court may not rely upon "the uniqueness of an agreement to arbitrate" as a basis for ruling that an agreement is unconscionable, and thus unenforceable. In other words, the Federal Arbitration Act abides a state's "generally applicable contract defenses," provided a defense does not "stand as an obstacle" to the accomplishment of the objectives of the act. (Concepcion, at p. ___ [131 S.Ct. at p. 1748].)
The following passage from Natalini sums up the principles to be taken away from the cases cited by the majority: "[The party seeking to compel arbitration] contends that Concepcion broadly restricts the application of the unconscionability doctrine to arbitration provisions. However, `Concepcion did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, the [c]ourt reaffirmed that the [Federal Arbitration Act's] savings clause preserves generally applicable contract defenses such as unconscionability, so long as those doctrines are not "applied in a fashion that disfavors arbitration."' [Citations.] [The party seeking to compel arbitration] argues that an unconscionability analysis that focuses on the lack of mutuality or bilaterality in an arbitration provision is `an example of applying a generally applicable contract defense in a manner which disfavors arbitration.' Recent California and federal district court decisions addressing arbitration provisions very similar to that in the present case and in the identical [consumer] purchase context have not read Concepcion so broadly. [Citations.] A conclusion that an adhesive arbitration provision is unconscionable because it is crafted overly in favor of the drafter does not rely on any `judicial policy judgment' disfavoring arbitration. (Truly Nolen, supra, 208 Cal.App.4th at p. 506.)" (Natalini, supra, 213 Cal.App.4th at pp. 594-595, fn. omitted.)
Even without consideration of whether Concepcion changes the Armendariz unconscionability analysis in California, I do not see any traditional unconscionability issues in the agreement apart from the potential implications of the waiver of class claims in arbitration. As to the waiver of class claims, I would find this is a case to follow Concepcion and find the waiver enforceable.
I disagree with the majority's conclusion that the arbitration agreement between Compton and American Management Services is so "tainted with illegality" as to render it wholly unenforceable. Compton filed a complaint against American Management Services seeking damages for alleged violations of statutory laws governing minimum and overtime wages (see Lab.
The arbitration agreement between American Management Services and Compton binds them equally with regard to the type of wage claims Compton has alleged. To the extent the injunctive relief "carve-out" in the arbitration agreement for trade secrets litigation may be one-sided, it could be easily severed from the remainder of the arbitration agreement, as I describe below. For these reasons, I disagree with the majority's finding that the "central purpose" of the arbitration agreement between Compton and American Management Services is so "tainted with illegality" due to a lack of bilaterality that it makes the agreement wholly void and unenforceable. (Maj. opn., ante, at p. 900.)
Though not raised by appellant, the majority's fourth reason for finding the agreement unconscionable is based on Compton's possible exposure to attorney fees. I disagree. An award of attorney fees in favor of a prevailing plaintiff is mandatory in a wage case under Labor Code section 1194. The arbitration agreement between Compton and American Management Services reads: "The Arbitrator is authorized to award attorneys' fees in accordance with applicable law. In the absence of an award, each Party shall be responsible for its own attorney fees." (Italics added.) The majority reads the attorney fee provision in the arbitration agreement to mean that the arbitrator has discretion not to award attorney fees even though they are mandatory under the Labor Code. I do not read the attorney fees provision in the arbitration agreement the same way. The provision states the arbitrator has the power to award fees "in accordance with applicable law." Thus, when a plaintiff prevails in a Labor Code section 1194 action, it is mandatory for the arbitrator to award such fees. The agreement authorizes the arbitrator to make a lawful award of attorney fees; it does not state that an arbitrator has discretion to disregard applicable law.
This issue also was not raised by the parties, but is used by the majority to find the agreement unconscionable. I would not rule the arbitration agreement void based on the agreement's "statute of limitations." The arbitration agreement provides that an employee must submit an "`Arbitration Request Form'" no later than one year after the date on which the employee knows, or should know, of the facts giving rise to his or her claim. The arbitration agreement further provides that "[t]he failure of an Employee to initiate an arbitration within the one year time limit shall constitute a waiver with respect to that claim." Thus, an employee may only seek a maximum of one-year's worth of wrongly unpaid wages under the arbitration agreement. In contrast, a three-year statute of limitations ordinarily applies to statutory wage claims. (Code Civ. Proc., § 338, subd. (a).) In Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 167, 178-179 [96 Cal.Rptr.2d 518, 999 P.2d 706], our Supreme Court ruled that the four-year statute of limitations prescribed in Business & Professions Code section 17208 applies to claims under the UCL based on underlying statutory wage claims. Accordingly, I agree with the majority's view that there is an issue in the shortening of a worker's claims window, effectively cutting off his or her right to seek three or four years of unpaid wages, and limiting recovery to one year of unpaid wages. But unlike the majority, I would not invalidate the entire arbitration agreement.
Instead, I would remand with directions to the trial court to sever the limitations provision, allowing Compton to pursue her claims in arbitration to the same extent as in a judicial action. The doctrine of severance attempts to preserve a contractual relationship if to do so would not condone an illegality. (See Armendariz, supra, 24 Cal.4th 83.) A court has discretion to sever an offending provision unless the "central purpose" of the contract is tainted with illegality. (Id. at p. 124.) In short, where the good can be separated from the bad, the court may sever the unconscionable provision. (Ibid.) I would find this to be appropriate here.
This leaves what I believe is the true issue at the heart of Compton's appeal, namely, whether an arbitration agreement's waiver of class claims is unconscionable in the employment context. Indeed, this is the first argument in Compton's opening brief on appeal. In the trial court, American Management Services argued that, under the result and reasoning of Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740], such a waiver is enforceable, even in the employment context. In opposing arbitration, Compton did not even acknowledge Concepcion; she argued the arbitration agreement,
The majority focuses on the lack of bilaterality, attorney fees and the statute of limitations as components of unconscionability, avoiding a discussion of the effect of the waiver of class claims in arbitration involved in the current case. Because I do not view the arbitration agreement here to be so "tainted" with illegality based on the elements discussed by the majority, I also address whether the waiver of class claims is enough to make the agreement unconscionable. This is a matter involving Gentry v. Superior Court (2007) 42 Cal.4th 443 [64 Cal.Rptr.3d 773, 165 P.3d 556] (Gentry), and Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740].
In Gentry, supra, 42 Cal.4th 443, the California Supreme Court ruled that a waiver of class claims in arbitration should be taken into account in the unconscionability analysis, and found class action waivers in an employment case involving overtime and minimum wage laws unenforceable. In reaching this conclusion, the Supreme Court discussed its earlier decision in Discover Bank v. Superior Court (2005) 36 Cal.4th 148 [30 Cal.Rptr.3d 76, 113 P.3d 1100] (Discover Bank). In Discover Bank, the Supreme Court held that an "adhesion" consumer contract which includes an arbitration agreement waiving class claims in arbitration is generally unconscionable. Specifically, Discover Bank held that, "when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party [with superior bargaining power] `from responsibility for [its] own fraud, or willful injury to the person or property of another.' [Citation.] Under these circumstances, such waivers are unconscionable under California law and should not be enforced." (Discover Bank, supra, 36 Cal.4th at pp. 162-163.)
In Discover Bank, our Supreme Court addressed and rejected an argument that the Federal Arbitration Act preempted California law on the subject of
In Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740], the United States Supreme Court ruled that the Federal Arbitration Act preempted California's unconscionability principles as articulated by our state Supreme Court in Discover Bank, supra, 36 Cal.4th 148. Specifically, the United States Supreme Court ruled that the judicially declared state law precluding enforcement of a waiver of classwide claims in arbitration in a consumer contract in Discover Bank was preempted because it interfered with and was inconsistent with the Federal Arbitration Act. (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1748].)
The current case squarely implicates Gentry, supra, 42 Cal.4th 443, and the continuing validity of waivers of class claims in arbitration in the employment context after Concepcion. I am bound to follow the United States Supreme Court's guidance on this issue because it involves determining the effect of a federal law — the Federal Arbitration Act — on a state rule. (Blue Cross of California v. Superior Court (1998) 67 Cal.App.4th 42, 56 [78 Cal.Rptr.2d 779]; Elliott v. Albright (1989) 209 Cal.App.3d 1028, 1034 [257 Cal.Rptr. 762].) This leads me to the conclusion that after Concepcion, a waiver of class claims in an employment contract should be enforced according to its terms.
I agree with the trial court that the arbitration agreement between Compton and American Management Services is not unenforceable because it was presented to Compton in a "take-it-or-leave-it" employment application context. An arbitration agreement that is presented to an employee as a condition of employment is enforceable under both federal and state arbitration law. (See Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1122-1127 [88 Cal.Rptr.2d 664].)
In any event, I am not offended by the procedural path to arbitration here. American Management Services's employment application prominently displayed the company's position that it required arbitration of an employee's
The majority concludes that because American Management Services did not submit a declaration disputing Compton's description of the circumstances under which the arbitration contract was signed, it is required to accept her version of those events as set forth in her declaration. (Maj. opn., ante, at p. 902.) As a result, the majority states, we must find that Compton was not told she was signing an arbitration agreement, did not understand the forms, and was hurried to sign the forms. The majority concludes: "In short, no matter how conspicuous the arbitration agreement's terms and advisements, AMS's conduct when presenting the agreement to Compton rendered them nearly meaningless." (Maj. opn., ante, at p. 902.) This is simply wrong. Compton affixed her signature to the employment application indicating she read and understood its terms, and understood she had three days to review the arbitration agreement and was welcome to seek independent advice about it. Compton does not deny she signed the contract. She is bound by the terms of the arbitration agreement whether she read it or not. (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1675 [53 Cal.Rptr.2d 515].) Her subsequent contradictory self-serving declaration, prepared for use in the current litigation, does not convince me to find she was rushed, hurried, or otherwise ill advised regarding the arbitration agreement. In any event, it certainly does not amount to "strong evidence of procedural unconscionability" (maj. opn., ante, at p. 902), as the majority claims.
The majority's reliance on Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1246-1247 [123 Cal.Rptr.3d 1] (Wherry) is misplaced. In Wherry, the court found procedural unconscionability where "[n]o one described the agreement's contents and plaintiffs were given but a few minutes to review and sign it, without any time to ask questions." (Id. at p. 1247.) The court found that even though the plaintiffs initialed and signed the document, that did "not vitiate plaintiffs' lack of time to review the agreement or have a lawyer look at it." (Ibid.) The facts here are quite different. Here, Compton acknowledged she was given three days to review the agreement and to seek
I am compelled to follow the law which incorporates a strong public policy in favor of arbitration, requiring that any doubts about the validity of an arbitration agreement be resolved in favor of arbitration. (See Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686 [99 Cal.Rptr.2d 809].) In my view, no other result can be reached if I adhere to those principles.
This leaves two additional issues raised by Compton, and not addressed in the majority opinion: (1) the recent decision in D. R. Horton, Inc. (2012) 357 NLRB No. 184 (Horton) supports the proposition that federal labor law controls in the employment labor context over Concepcion, and federal labor law permits employees to pursue class actions in court or in arbitration because such actions are a protected activity by employees, and (2) American Management Services waived its contractual right to compel arbitration. I would not overturn the trial court's order compelling arbitration on either ground.
As to Horton, I would not find it trumps Concepcion. Horton involves collective bargaining issues, and the effect that arbitration agreements waiving class claims in arbitration may have in that context. I would not apply the NLRB's ruling, which effectively reads into federal labor law concerning collective bargaining rights a prohibition against class action waivers in arbitration. The NLRB ruling in Horton is particularly inapt here, where collective bargaining matters are not at issue.
In any event, there is an appeal of the NLRB's decision in Horton currently pending in the Fifth Circuit. (D.R. Horton, Inc. v. NLRB, (5th Cir., No. 12-60031).) In addition, in Owen v. Bristol Care, Inc. (8th Cir. 2013) 702 F.3d 1050 (Owen), the United States Court of Appeals, Eighth Circuit, declined to follow Horton, noting that the court was not obligated to defer to NLRB rulings interpreting Supreme Court precedent, and finding
Nor do I believe American Management Services waived its right to arbitrate. Under both federal and state arbitration law, a finding of waiver of arbitration is disfavored. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 [8 Cal.Rptr.3d 517, 82 P.3d 727].) Here, American Management Services asserted its contractual arbitration rights as soon as practicable after Concepcion opened the door for it to do so.
I view the majority opinion's unconscionability analysis flawed. I also believe the waiver of class claims in an employment agreement to be wholly enforceable after Concepcion. I would affirm the judgment and remand with directions to the trial court to sever the statute of limitations provision.
