McGUINESS, P. J. —
Plaintiff Maya Baxter sued her former employer, defendant Genworth North America Corporation (Genworth), for wrongful termination and related causes of action arising out of her employment. Genworth moved to compel arbitration of the dispute. On appeal from an order denying its motion to compel arbitration, Genworth contends the trial court erred in concluding the arbitration agreement is unconscionable and in refusing to sever any provisions the court considered to be unconscionable. Because we conclude the arbitration agreement is procedurally and substantively unconscionable, we shall affirm the trial court's order.
Baxter began working for defendant AssetMark Investment Services, Inc. (AssetMark), in February 2001. Genworth acquired AssetMark in August 2006. As AssetMark transitioned to Genworth, Baxter became an employee of Genworth. As a condition of her continued employment, Genworth required Baxter to sign a "Conditions of Employment Acknowledgment" form. Baxter signed the acknowledgment, which confirmed her receipt and review of certain printed materials and included her agreement to arbitrate any disputes arising out of her employment. Baxter agreed to resolve employment related disputes according to guidelines set forth in Genworth's alternative dispute resolution program known as the resolve employee issue resolution program (Resolve).
The Resolve program sets forth four stages, or "levels," for pursuing dispute resolution. The Resolve program begins with an employer-controlled process before it reaches mediation or arbitration. An employee is required to submit his or her concern in writing to the Resolve administrator. At level one of Resolve, employees are required to discuss their concerns with their immediate manager and a human resources representative. If the concern cannot be resolved at level one, the employee may proceed to level two, which involves a meeting among the employee, a higher-level manager, and a human resources representative in an attempt to resolve the employee's concern. Attorneys are not permitted to participate in levels one and two of Resolve. If the dispute is not resolved at level two, the employee may request mediation (level three) if the dispute arises out of a covered claim, such as claims relating to compensation, involuntary termination, or employment discrimination and harassment. An employee whose dispute is not resolved by mediation at level three may then pursue arbitration at level four.
Baxter alleges she continued to be promoted, get favorable performance evaluations, and receive salary increases during her tenure at Genworth. At some point in 2011, Baxter's role was expanded to include supervisory responsibilities. Baxter alleges she expressed concern about employee evaluation forms that included race, age, and gender coding. Baxter, an African American woman, opposed and protested Genworth's evaluation protocol based upon her good faith belief that evaluating employees on the basis of age, race, and gender was discriminatory and unlawful. She claims she was admonished and subjected to ongoing harassment and retaliation as a result of her concerns about the evaluation protocol. In early 2013, Baxter requested and was granted a medical leave of absence under the Moore-Brown-Roberti Family Rights Act (CFRA) (Gov. Code, § 12945.2 et seq.) in order to care for her mother. Baxter was scheduled to return to work in the middle of June 2013.
In August 2014, Baxter filed a complaint for damages against Genworth and AssetMark
Genworth filed a motion to compel arbitration of Baxter's claims after Baxter refused to stipulate to arbitrate her claims pursuant to the Resolve program. AssetMark joined in Genworth's motion. Genworth argued that the arbitration agreement meets the minimum fairness requirements established by California law and that Baxter violated the agreement by filing suit. Baxter opposed the motion.
The trial court denied Genworth's motion to compel arbitration. The court reasoned that the arbitration agreement is both procedurally and substantively unconscionable. Because Baxter was required to sign the agreement as a condition of her continued employment, the court found substantial evidence of "modest procedural unconscionability." The court concluded that a number of features of the arbitration agreement were substantively unconscionable, including default discovery limitations, a prohibition against contacting witnesses, procedural deadlines that effectively shorten the statute of limitations and preclude a meaningful opportunity for a prelitigation FEHA investigation, and accelerated hearing procedures that infringe upon an employee's ability to adequately present his or her case. The court also ruled that severance of the offending provisions was not an option because the arbitration agreement is permeated by unconscionability.
Both procedural and substantive unconscionability must be present for a court to refuse to enforce a contract, although they need not be present in the same degree. (Baltazar, supra, 62 Cal.4th at p. 1243.) "`Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.' [Citations.] In other words, the 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, supra, 24 Cal.4th at p. 114.)
"`On appeal from the denial of a motion to compel arbitration, "we review the arbitration agreement de novo to determine whether it is legally enforceable, applying general principles of California contract law."' [Citation.] Thus, unconscionability is a question of law we review de novo. [Citation.] To the extent the trial court's determination on the issue turned on the resolution of contested facts, we would review the court's factual determinations for substantial evidence." (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 82 [171 Cal.Rptr.3d 42]; see JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1235 [123 Cal.Rptr.3d 429]; Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1468-1469 [92 Cal.Rptr.3d 153].) Because the essential facts are undisputed in this case, we consider anew whether the arbitration agreement is procedurally and substantively unconscionable.
In assessing whether the trial court erred in declining to sever any unconscionable provisions and enforce the remainder of the arbitration agreement, we will not reverse the trial court's severance decision unless an abuse of discretion is shown. (See Carmona v. Lincoln Millennium Car Wash, Inc., supra, 226 Cal.App.4th at p. 83.)
Here, Baxter had no opportunity to negotiate the terms of the Resolve program. Nor did she have any meaningful choice in the matter. She could either quit her job of over five years or agree to the arbitration terms that were a condition of her continued employment. The Resolve program was presented in a take-it or leave-it manner. Baxter lacked equal bargaining power. These facts present a "high degree of oppressiveness" supporting a finding of procedural unconscionability. (See Fitz, supra, 118 Cal.App.4th at p. 722.)
Genworth nonetheless contends the arbitration agreement is not procedurally unconscionable. The argument is unpersuasive. It claims numerous California decisions have held that arbitration agreements are not rendered unenforceable simply because they are offered on a take-it or leave-it basis to an employee. To support its argument, Genworth cites cases in which adhesive arbitration agreements were enforced because they were not substantively unconscionable. (See, e.g., Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1075-1076 [130 Cal.Rptr.2d 892, 63 P.3d 979] [adhesive arbitration agreement enforceable because substantively unconscionable provision could be severed].) The cases relied upon by Genworth are not at odds with the general rule that the existence of contract of adhesion supports a finding of procedural conscionability. Rather, the cases simply apply the principle that a court may not refuse to enforce an arbitration agreement unless it is both procedurally and substantively unconscionable. (See Baltazar, supra, 62 Cal.4th at p. 1243.)
Genworth also purports to rely upon the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 [179 L.Ed.2d 742, 131 S.Ct. 1740] for the proposition that procedural unconscionability is not established simply because a party has no choice but to accept a nonnegotiable arbitration agreement. We do not agree with
We conclude the trial court did not err in finding that the arbitration agreement is procedurally unconscionable.
The Resolve guidelines prohibit employees and their attorneys from obtaining information outside the formal discovery process. The prohibition applies to the company's proprietary documents but also extends to attempts to question another employee about the aggrieved employee's claim. The guidelines specify that "[a]ny employee who is questioned by another employee or
The trial court concluded that this one-sided prohibition against communicating with coemployees is "grossly unfair to the employee and has serious public policy implications." The court noted that a complaining employee who was prohibited from contacting coemployees would be left to gamble as to which potential witnesses to depose within the limits set by the arbitration agreement, whereas the employer would have unfettered access to its employees and could cherry-pick the witnesses it might choose to depose.
Genworth complains the trial court took the prohibition out of context. It claims that the provision, when read in context, simply bars a complaining employee from "obtaining information, particularly the Company's proprietary information, outside of the supervised, formal discovery process." It also contends the prohibition is no different from the limitation the law already places on any litigant from pursuing self-help outside the formal discovery process.
We do not agree with Genworth's characterization of the prohibition against informal discovery as being limited to its proprietary documents or information. The prohibition forbids questioning of coemployees about the substance of an employee's claim. While the Resolve guidelines emphasize that employees shall not "directly or indirectly attempt to obtain copies of the Company's proprietary documents" except through formal discovery, the prohibition against communicating with employees is not limited to the solicitation of proprietary information or documents. This provision of the Resolve guidelines effectively acts as a gag order that limits a complaining employee's ability to informally investigate a claim. As the trial court observed, without the ability to conduct such an informal investigation, an employee will be hampered in his or her ability to effectively tailor the
Further, the prohibition against contacting other employees is not necessarily consistent with limitations the law already places on seeking self-help outside the formal discovery process, as Genworth claims. As support for its assertion, Genworth relies on a case that disapproves of any litigant or potential litigant who "converts, interdicts or otherwise purloins documents in the pursuit of litigation outside the legal process...." (Pillsbury, Madison & Sutro v. Schectman (1997) 55 Cal.App.4th 1279, 1289 [64 Cal.Rptr.2d 698], italics added.) The decision is limited in scope to a party's attempts to obtain another party's proprietary documents outside the formal discovery process. The court's analysis is premised upon the notion that taking or removing tangible property belonging to another party constitutes conversion and violates personal property rights, irrespective of whether the documents or other property might otherwise be subject to formal discovery. (Id. at p. 1288.) This principle does not apply to information that may be sought from a coworker relating to a discrimination or harassment claim, as long as the employee or other person conducting an informal investigation does not seek the employer's proprietary documents or information that is confidential, privileged, or otherwise protected from disclosure. Consequently, we do not agree that the Resolve prohibition against communicating with employees is simply consistent with limitations on informal discovery that apply in all cases.
Genworth fails to identify any law or legal principle that forbids an employee from answering a coworker's inquiry about a harassment or discrimination claim. It also fails to cite to any case law supporting the proposition that such a prohibition is valid under California law. We conclude that the prohibition against communicating with other employees is unfairly one sided and therefore a substantively unconscionable provision.
The Resolve guidelines set default limitations on discovery that may be conducted in preparation for arbitration. An employee is entitled to receive documents from his or her personnel and medical files. In addition, each party may submit up to 10 interrogatories to another party (with each subpart counting as a separate interrogatory), propound five written requests for documents, and depose two individuals for a total of no more than eight hours. The Resolve guidelines give the arbitrator authority to increase the number of depositions, interrogatories, and requests for production "for good and sufficient cause shown" in order "to ensure that a party has a fair opportunity to present a case...."
Genworth argues the trial court erred in concluding that these discovery provisions are unconscionable. According to Genworth, if the default discovery limits are inadequate in a particular case, the arbitrator has ample authority to expand discovery as necessary to ensure a fair arbitration. And it takes issue with the "speculation" that an arbitrator may deny adequate discovery in a particular case. Genworth cites the principle that the court must assume an arbitrator will act in a reasonable manner in conformity with the law. (See Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 984 [104 Cal.Rptr.3d 341].)
In this factually complex case involving an employee who had a 12-year employment history at Genworth and AssetMark, the outcome will depend upon several percipient witnesses, at least six of whom are identified by name
In Fitz, supra, 118 Cal.App.4th 702, the court held that similar discovery limits were unconscionable and violated the minimum requirements of Armendariz. The arbitration agreement in Fitz allowed two depositions in addition to expert depositions, with no time limit established for the length of the depositions. (Id. at p. 709.) The agreement required an exchange of exhibits but did not otherwise expressly authorize written discovery demands. (Ibid.) "No other discovery [was] allowed unless the arbitrator [found] a compelling need to allow it. The policy require[d] the arbitrator to limit discovery as specified in the agreement unless the parties [could] demonstrate that a fair hearing would be impossible without additional discovery." (Id. at p. 716.) In concluding that the arbitration agreement did not allow for adequate discovery, the Fitz court focused on the fact the agreement allowed for only two depositions of percipient witnesses, a number that would be sufficient only in an "unusual" employment dispute. (Id. at p. 717.) Granting the arbitrator discretion to allow additional discovery was an "inadequate safety valve" in light of the "impossibility" standard that had to be met to justify more discovery. (Ibid.) According to the court, "the burden the [arbitration agreement] imposes on the requesting party is so high and the amount of discovery the [agreement] permits by right is so low that employees may find themselves in a position where not only are they unable to gain access to enough information to prove their claims, but are left with such scant discovery that they are unlikely to be able to demonstrate to the arbitrator a compelling need for more discovery." (Id. at pp. 717-718, fn. omitted.)
Genworth contends that discovery provisions substantially similar to those in the Resolve guidelines have been upheld. Genworth relies on Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 404-406 [168 Cal.Rptr.3d 473] (Sanchez), in which the court concluded that an arbitration agreement that limited discovery to three depositions and 20 interrogatories was not unconscionable as a matter of law. The agreement in Sanchez allowed for additional discovery upon a showing of "`substantial need.'" (Id. at p. 404.) The Sanchez court emphasized that the standard for additional discovery was lower than the "`compelling'" need required to be shown in Fitz. (Id. at p. 405.) Genworth also cites Mercuro, supra, 96 Cal.App.4th at page 184, in which the court was "unable to say" that an arbitration agreement that allowed three depositions and a total of 30
Sanchez and Mercuro are distinguishable. In those cases, the employees failed to establish as a factual matter that the discovery provisions were inadequate to vindicate their statutory rights. (See Sanchez, supra, 224 Cal.App.4th at pp. 404-405; Mercuro, supra, 96 Cal.App.4th at p. 183.) In Sanchez, the employee failed to offer any showing that the default levels of discovery would be inadequate. (Sanchez, at p. 405.) And, although the court in Mercuro conceded the employee's concern over the discovery provisions was not unreasonable, it was not prepared to say he was prevented from vindicating his statutory rights "without evidence" of how the provisions might be applied in practice. (Mercuro, at p. 183.) Thus, it was not sufficient simply to claim that the discovery limitations were unconscionable in the abstract. It was necessary to make a factual showing that the discovery limitations would as a practical matter thwart the employee's ability to prove his or her particular claims.
Here, unlike in Sanchez and Mercuro, Baxter set forth facts tending to show that the default levels of discovery would be inadequate to vindicate her statutory rights. (See Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494, 513 [79 Cal.Rptr.3d 471] [employee estimated need to take at least 15 to 20 depositions but agreement limited employee to one deposition and placed "quite high" burden for additional discovery].) She estimated she would need to depose an estimated six to 10 witnesses, six of whom are already identified in her complaint. Further, she predicted she would need to depose persons Genworth would designate as most knowledgeable on a variety of topics depending upon the defenses Genworth may assert. As far as we are aware, Genworth did not dispute these estimates of the number of depositions required.
In addition, while the "good and sufficient cause" standard for additional discovery in the Resolve guidelines is not as onerous as a "compelling need" standard in Fitz, it still presents a more stringent standard than a simple "showing of need," a standard the court concluded did not impose an unreasonable limitation on the arbitrator's authority to increase discovery in Dotson v. Amgen, Inc., supra, 181 Cal.App.4th at pages 978 and 984. Moreover, the "good and sufficient cause" standard is vague. (Italics added.) Presumably, it is not enough merely to show "good cause" for additional discovery. Otherwise, the term "sufficient" would be rendered meaningless. In applying the Resolve guidelines and assessing whether a "sufficient" showing has been made to justify additional discovery, an arbitrator might expect a showing beyond simple "good cause," particularly if the employee seeks discovery well beyond the default limitations.
The Resolve program requires an employee to initiate a claim within the "applicable statute[] of limitations." In the case of a claim that requires the filing of a charge with an administrative agency before a court action may be instituted, the Resolve guidelines define the "applicable statute of limitations" as the administrative agency filing deadline. Thus, the "applicable statute of limitations" for a FEHA claim under the Resolve guidelines is one year, which is the limitations period for filing a FEHA administrative claim. (Gov. Code, § 12960, subd. (d).)
After a claim is initiated at level one of Resolve, an employee must meet certain deadlines before the claim may proceed to the next level. A level two
In Ellis, supra, 224 Cal.App.4th at page 1225, the Court of Appeal held that an arbitration agreement establishing a six-month limitations period for statutory FEHA claims was unconscionable. (Accord, Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 117-118 [12 Cal.Rptr.3d 663].) The court pointed out that employment discrimination claims are already subject to shortened statutes of limitation. (Ellis, at p. 1223.) Cutting the limitations period to six months "seriously truncates the time" to vindicate statutory rights under the FEHA, thus "drastically reducing the time to sue allowed by FEHA by as much as five-sixths." (Ellis, at p. 1225.) According to the Ellis court, six months did not provide sufficient time to pursue legal remedies and violated the public policy embodied in Government Code section 12920, which establishes the statutory time period the Legislature has impliedly determined will allow for an aggrieved party to vindicate his or her statutory rights. (Ellis, at p. 1225.)
Genworth contends Resolve does not shorten the statute of limitations. We disagree. The practical effect of the Resolve guidelines is to shorten the period that would otherwise apply to file an action in court. Whereas an aggrieved party would ordinarily have up to three years to file a FEHA action in court (depending upon how quickly the prerequisite administrative claim is handled), under Resolve an aggrieved party has only one year to initiate a complaint. Moreover, an employee must submit to arbitration under the Resolve guidelines within 30 days of Genworth's written notice regarding the outcome of mediation even if a FEHA investigation has not yet been concluded or if the statute of limitations to file a FEHA lawsuit has not yet run. Indeed, given the fast pace at which a claim progresses through the various levels of Resolve, it is conceivable that an employee who promptly
Although the Resolve guidelines allow an aggrieved party to initiate a FEHA claim within one year, instead of the six months that the Ellis court found inadequate, the shortened limitations period is nonetheless insufficient for the reasons explained in Ellis. (Ellis, supra, 224 Cal.App.4th at pp. 1223-1227.) Reducing the time to pursue a claim by as much as two-thirds does not provide sufficient time to vindicate an employee's statutory rights under the FEHA.
Accordingly, we conclude the shortened limitations period in Resolve is insufficient to protect an employee's right to vindicate his or her statutory rights and is therefore substantively unconscionable.
Genworth claims the trial court misread the Resolve guidelines, which expressly permit employees to pursue administrative remedies. Genworth relies upon a provision in the Resolve guidelines clarifying that they are not intended "to discourage or interfere with the legally protected rights of employees to file administrative claims or charges with government agencies." It also cites a discussion in the Resolve handbook specifying that the program does not "prevent employees from seeking the assistance of any government agency...." In that same discussion, the Resolve handbook notes that Genworth and the employee "may jointly ask the agency to defer processing the charge so that the Resolve process may be utilized."
If our analysis were limited to the specific language in Resolve cited by Genworth, we would tend to agree with the trial court's conclusion that the program's timelines might force employees to waive their right to an administrative investigation in order to secure an immediate right-to-sue letter. After all, Genworth did not cite any language in the Resolve guidelines that waives the requirement of exhaustion of administrative remedies or the issuance of a right-to-sue letter as a prerequisite to seeking relief for certain statutory claims. Simply declaring that the Resolve guidelines are not intended to interfere with an employee's rights to pursue administrative claims does not change the practical effect of the shortened limitations period. Nor is the problem resolved by agreeing to defer the administrative agency's processing of the charge, because that necessarily defers the issuance of a right-to-sue letter that is a prerequisite to seeking relief. Being allowed to pursue administrative remedies after the conclusion of the arbitration is a hollow right if the employee is barred from pursuing statutory FEHA claims in the arbitration itself due to the failure to exhaust administrative remedies.
Nevertheless, in a section of the Resolve handbook that includes answers to common questions about the program, there is support for the notion that Genworth has agreed to waive the issuance of a right-to-sue letter as a prerequisite to pursuing statutory FEHA claims. Specifically, in response to a
The Ellis court concluded that a provision that "effectively eliminates any meaningful participation by the DFEH" is unreasonable. (Ellis, supra, 224 Cal.App.4th at p. 1226.) While Resolve allows an employee to pursue a claim with the DFEH after an arbitration concludes, the question remains whether the DFEH's participation is as meaningful after the parties have already arbitrated their statutory FEHA claims. The filing of an administrative complaint with the DFEH may provide the employee with a preview of the employer's defenses and may give the employee the benefit of investigative efforts conducted by the DFEH. In light of these potential benefits of pursuing an administrative claim, it is in the employee's interest to have the DFEH participate in a claim before the employee has to litigate statutory FEHA claims in an arbitration. Yet, Resolve does not guarantee that an
Accordingly, while we agree with Genworth that Resolve does not preclude an employee from pursuing administrative remedies, we nonetheless conclude that Resolve may deprive an employee of his or her right to have an administrative investigation conducted before the employee is required to pursue statutory FEHA claims in an arbitration. Because the administrative claim process may be beneficial to the employee in pursuing claims against an employer, provisions in Resolve that have the effect of dispensing with that process before a statutory FEHA claim must be arbitrated establish at least a moderate degree of substantive unconscionability.
The Resolve guidelines specify that the arbitration must commence within 120 calendar days after an arbitrator is appointed unless "good cause" is shown for an extension or the parties otherwise agree to a later commencement. The arbitrator "shall seek to limit the length of the arbitration hearing to two 8-hour days (16 hours total); provided, however, that the arbitration shall have the authority to extend the length of a hearing as necessary."
The trial court concluded these timelines for commencing and completing an arbitration are unconscionable. It reasoned that the time pressure created by the 120-day timeline is exacerbated by timelines for disclosing witnesses, completing discovery requests, and completing the arbitration itself in under 16 hours. The court concluded that "[f]ew successful employment litigation attorneys will be in a position to suddenly put their practice on hold so as to accommodate this `rocket docket' hearing procedure." Further, the court found it was unfair to place the burden on the employee to show good cause for extending the timelines.
Nevertheless, we tend to agree with the trial court's assessment that the Resolve arbitration timelines would prove to be unreasonably short in a more complex employment dispute such as this one. But we part ways with the
Baxter raises two additional concerns about the Resolve program that the trial court did not rely upon in its ruling. First, Baxter complains that the Resolve program gives Genworth an unfair early look at her evidence by requiring her to participate in an informal, company-controlled dispute resolution process. Second, she argues that a $50 initiation fee is substantively unconscionable. As we explain, these concerns are unfounded.
As support for her claim that Resolve gives Genworth an unfair preview of her evidence, Baxter relies upon Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267 [16 Cal.Rptr.3d 296], and Pokorny v. Quixtar, Inc. (9th Cir. 2010) 601 F.3d 987. In those cases, the arbitration agreement did not provide for a mediation conducted by a neutral third party mediator as a condition precedent to arbitration but, instead, required mediation to be conducted through the employer's internal processes. (Nyulassy v. Lockheed Martin Corp., at p. 1282; Pokorny v. Quixtar, Inc., at p. 999.) In addition, in both cases the obligation to pursue informal dispute procedures was not mutual but applied to the employee only. (Nyulassy, at p. 1282; Pokorny, at p. 999.) Here, by contrast, the requirement to pursue informal dispute resolution procedures is mutual and applies to Genworth as well as its employees. Further, the Resolve guidelines expressly provide for a neutral third party mediator who is mutually selected by both parties. Consequently, the cases relied upon by Baxter do not support her unconscionability claim.
As a final matter, Genworth contends the trial court abused its discretion in declining to sever any provisions of the Resolve program that it found unconscionable. We disagree.
"First, the arbitration agreement contains more than one unlawful provision.... Such multiple defects indicate a systematic effort to impose
"Second, ... there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement." (Armendariz, supra, 24 Cal.4th at pp. 124-125.) In this case, it would not be sufficient simply to strike certain terms. The trial court would have had to rewrite the unconscionable provisions in order to ensure mutuality and fairness. The court lacked the power to do so. (Id. at p. 125 [court lacks power to cure unconscionability through reformation by augmentation].) Accordingly, the court did not abuse its discretion in declining to sever the unconscionable provisions.
The order denying Genworth's motion to compel arbitration is affirmed. Respondent shall be entitled to recover its costs on appeal.
Siggins, J., and Jenkins, J., concurred.
