SUSAN ILLSTON, District Judge.
Excel's motion to compel arbitration is currently scheduled for hearing on February 11, 2011. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument and hereby VACATES the hearing. Having considered the papers submitted, and for good cause shown, the Court hereby DENIES Excel's motion.
Susana Macias ("Macias") began working for Excel Building Services ("Excel") in approximately December 2004. Comp. ¶ 14, Doc. 1. She was initially employed as a janitor and later promoted to janitorial supervisor. Id. at ¶ 18. After her promotion, Macias alleges that she still performed basic janitorial duties in addition to her supervisory duties. Id. Macias claims that she was often expected to work overtime but was not paid any extra wages. Id. at ¶ 17.
In approximately May 2009, Macias became pregnant. Id. at ¶ 25. She was hospitalized due to pregnancy-related health issues in August 2009. Id. at ¶ 26. When Macias was released from the hospital, the doctors recommended that she take a three-week break from work, minimize heavy lifting and take more frequent breaks. Id. at ¶¶ 26-27. Macias alleges that Mr. Ramos, her supervisor at Excel, was unwilling to grant her the requested leave or adjust her work load. Id. During Macias' final trimester, she alleges that she once again asked that her assignments be modified to accommodate her pregnancy (e.g. that she not be required to do heavy lifting, or work with harsh chemicals) and that she was once again denied, this time by Feliza Guerrero, Excel's Human Resources Manager. Id. at ¶ 29.
Macias claims that on December 29, 2009, she met with Guerrero to request maternity and bonding leave. Id. at ¶ 33. She alleges that the two created a written agreement indicating that Macias would be on full-time leave between January 31, 2010 and March 15, 2010, then work part-time between March 15, 2010 and May 1, 2010, and resume full-time work on May 2, 2010. Id. Macias began her maternity leave as scheduled, on January 31, 2010, and gave birth on February 9, 2010. Id. at ¶ 34. Macias alleges that on March 12, 2010, she contacted Guerrero to confirm that she would return to work part-time on March 15. Id. at ¶ 35. Macias claims that she was told that she would have to meet with Jack Fabrique, the head of the company, in Pleasanton before returning to work. Id. Macias alleges that the meeting was repeatedly rescheduled and did not take place until March 31, 2010. Id. at ¶¶ 36-37. At that meeting, Macias claims that Fabrique terminated her employment, stating something to the effect of "women do not work as well after having a baby." Id. at ¶¶ 38-39. Macias, who claims to speak only Spanish, alleges that Guerrero acted as her translator at this meeting. Id. at ¶ 37. Macias alleges that after she was terminated, Fabrique and Guerrero offered her papers written in English and told her that if she would sign the papers, which included a waiver of Macias right to sue Excel, she would be given $2,000. Id. at ¶ 40. Macias states that she requested a copy of the papers so that she could have someone help her read them before deciding but was refused. Id. Macias declined to sign the papers. Id.
Section 4 of the Federal Arbitration Act ("FAA") permits "a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States District Court ... for an order directing that ... arbitration proceed in the manner provided for in [the arbitration] agreement." 9 U.S.C. § 4. Upon a showing that a party has failed to comply with a valid arbitration agreement, the district court must issue an order compelling arbitration. Id.
The Supreme Court has stated that the FAA espouses a general policy favoring arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); see also Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Federal courts are required to rigorously enforce an agreement to arbitrate. See Hall Street Assoc., 552 U.S. at 582, 128 S.Ct. 1396. In determining whether to issue an order compelling arbitration, the court may not review the merits of the dispute but must limit its inquiry to (1) whether the contract containing the arbitration agreement evidences a transaction involving interstate commerce, (2) whether there exists a valid agreement to arbitrate, and (3) whether the dispute(s) fall within the scope of the agreement to arbitrate. See Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477-478 (9th Cir.1991), cert. denied, 503 U.S. 919, 112 S.Ct. 1294, 117 L.Ed.2d 516 (1992). If the answer to each of these queries is affirmative, then the court must order the parties to arbitration in accordance with the terms of their agreement. 9 U.S.C. § 4.
The FAA provides that arbitration agreements generally "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or inequity for the revocation of any contract." 9 U.S.C. § 2. "Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening" federal law. Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). In interpreting the validity and scope of an arbitration agreement, the courts apply state law principles of contract formation and interpretation. See id.; see also Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir.1998). Accordingly, the Court reviews plaintiff's arbitration agreement in light of the "liberal federal policy favoring arbitration agreements," Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927, and considers the enforceability according to the laws of the state of contract formation, see First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131
The Ninth Circuit and the California Supreme Court have both declined to enforce arbitration agreements where the agreement was found to be unconscionable. See e.g. Ingle, 328 F.3d 1165; Armendariz v. Found. Health Psychcare Svcs., Inc., 24 Cal.4th 83, 91, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000). Under California law, in order for a court to find an arbitration agreement unconscionable as a whole, the court must find that the agreement is both procedurally and substantively unconscionable. Davis v. O'Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir.2007) (citing Armendariz, 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669). The more procedurally unconscionable an agreement is, the less substantive unconscionability is necessary to invalidate the agreement, and vice versa; however, both must be present at some level. Id. (citing Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519, 60 Cal.Rptr.2d 138 (1997)).
In determining whether the Excel Agreement is enforceable, this Court must first determine whether the Agreement is procedurally unconscionable. If it is, this Court must determine whether it is also substantively unconscionable. If both criteria are met, the Court must then determine whether the entire agreement must be invalidated, or whether certain terms may be removed while leaving the remainder intact.
While the Court may not review the merits of the underlying case "[i]n deciding a motion to compel arbitration, [it] may consider the pleadings, documents of uncontested validity, and affidavits submitted by either party." Ostroff v. Alterra Healthcare Corp., 433 F.Supp.2d 538, 540 (E.D.Pa.2006).
The procedural aspect of the unconscionability analysis focuses on the manner in which the agreement was negotiated, and, typically, on the oppressiveness of the stronger party's conduct. Martinez v. Master Protection Corp., 118 Cal.App.4th 107, 114, 12 Cal.Rptr.3d 663 (2004). "`Oppression' arises from an inequality of bargaining power which results in no real negotiation and `an absence of meaningful choice.'" Id. (quoting A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 486, 186 Cal.Rptr. 114 (1982)). "An arbitration agreement that is an essential part of a `take it or leave it' employment condition, without more, is procedurally unconscionable." Id. (citing Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669, 690-91 (2000)).
Macias argues that the arbitration agreement is procedurally unconscionable
In a declaration, Macias says that she was told that she "needed" to sign certain papers in 2007, two years after she was hired by Excel, and again in 2009. Macias Decl. at ¶¶ 2-3, 5. Macias also submits a copy of the "Excel Building Services Employee Handbook." Shawver Decl. Ex. A. The second page of the handbook states that any "revisions, deletions or additions" to the handbook "must be in writing and must be signed by the Chief Executive Officer of the Company." Id. at 2. The last two pages of the handbook are an "Acknowledgment and Agreement" to be signed by the employee, fully half of which is an agreement to arbitrate. Id. at 39-40. It is this agreement to arbitrate that is at issue in this motion, and it is the only part of the handbook that must be signed by the employee.
Excel presents no affirmative evidence that Macias in fact could have attempted to negotiate the terms of her employment. Macias worked initially as a janitor and later as a janitorial supervisor. Macias Decl. ¶ 2. The unsubstantiated suggestion that she might have been permitted to negotiate the terms of the Agreement is not persuasive. See Davis, 485 F.3d at 1073-74 (recognizing that while employees working at an international law firm were "invited to ask questions" about the arbitration agreement, that did not "indicate that the terms were negotiable for employees such as Davis."); see also Nyulassy v. Lockheed Martin Corp., 120 Cal.App.4th 1267, 1285-86, 16 Cal.Rptr.3d 296 (2004) (holding that even where an employee is represented by counsel during contract negotiation, the contract may still be found procedurally unconscionable where no opportunity for meaningful negotiation exists).
Excel argues that this does not matter because "the issue [of procedural unconscionability] boils down to a question of whether [Macias] was somehow surprised, tricked, misled, or uninformed by Excel in connection with executing the Agreement." Def.'s Reply to Opp. to Mot. to Compel ("Def. Reply"), 2, Doc. 19. This is untrue. In Davis, the Ninth Circuit stated clearly that the arbitration agreement it was examining contained "no factors of adhesion such as surprise or concealment. The [agreement] was not hidden. The terms were not concealed in an employee handbook. The binding nature of the agreement was in bold and uppercase text. Terms were not buried in fine print." 485 F.3d at 1073. Nevertheless, the Ninth Circuit found the agreement to be unconscionable because it was a "take it or leave
The Court concludes that the arbitration agreement was an essential part of a "take it or leave it" employment condition. The adhesive "take it or leave it" nature of Excel's Agreement, combined with the significant disparity in bargaining power between Excel, as the employer, and Macias, as the employee, leads the Court to conclude that the agreement is procedurally unconscionable.
"[U]nder California law, a contract to arbitrate between an employer and an employee ... raises a rebuttable presumption of substantive unconscionability." Ingle, 328 F.3d at 1174. The employer may rebut the presumption by showing that the agreement contains a "modicum of bilaterality" or that there is a reasonable justification for the agreement's one-sidedness, based on business realities. Armendariz, 24 Cal.4th at 117-18, 99 Cal.Rptr.2d 745, 6 P.3d 669, cited with approval in Ingle, 328 F.3d at 1174, fn. 10. Terms that grant one party the power to unilaterally change the terms of an arbitration agreement may contribute to substantive unconscionability because such terms undermine the voluntary nature of arbitration agreements. Ingle, 328 F.3d at 1179. Additionally, a lack of information regarding the proposed arbitral forum or applicable arbitral rules may also contribute to substantive unconscionability. Harper v. Ultimo, 113 Cal.App.4th 1402, 1407, 7 Cal.Rptr.3d 418 (2003).
A finding of one-sidedness may be premised on the actual effect of the terms, rather than a superficial reading, where it is clear that the terms would in practice benefit one party. See Stirlen, 51 Cal. App.4th at 1540-41, 60 Cal.Rptr.2d 138 ("The mandatory arbitration requirement can only realistically be seen as applying primarily if not exclusively to claims arising out of the termination of employment, which are virtually certain to be filed against, not by Supercuts.").
In the present case, the arbitration agreement requires that any dispute "arising out of or related to the termination of [the employee's] employment or involving allegations of unlawful harassment or discrimination" be submitted to arbitration. Guerrero Decl., Ex. A. Excepted from this provision are suits "regarding unfair competition, trade secrets or confidentiality." Id. The Agreement also states that the required arbitration "is the exclusive remedy for both [the employee] and Excel." Id.
In Ingle, the Ninth Circuit stated that where, under the terms of the agreement, "the possibility that [the employer] would initiate an action against one of its employees is so remote, the lucre of the arbitration agreement flows one way: the employee relinquishes rights while the employer generally reaps the benefits of arbitrating its employment disputes." 328 F.3d at 1174. The idea that Excel would bring suit against Macias related to Macias' termination outside the scope of unfair competition, trade secrets, or confidentiality is implausible: it is difficult to imagine a scenario in which Excel would bring a discrimination or harassment case against Macias. Cf. Ingle, 328 F.3d at 1173-74 (finding an employer's claim that the arbitration agreement subjected both employer and employee to the same terms was "disingenuous" based on the remote probability
The situation in the present case is not as severe as in Ingle, where the agreement explicitly limited the arbitration requirement to claims brought by associates; however, the practical effect of the Agreement is the same here as it was in Ingle. See Ingle, 328 F.3d at 1174 ("The only claims realistically affected by an arbitration agreement between an employer and an employee are those claims employees bring against their employers."); see also Stirlen, 51 Cal.App.4th at 1540-41, 60 Cal.Rptr.2d 138. While this lack of mutuality alone does not create inherent unconscionability, it does substantiate the presumption of unconscionability established by the employment context of the Agreement. See Ingle, 328 F.3d at 1174.
Excel attempts to rebut the presumption of unconscionability by arguing that "[t]he information Macias was privy to as an Excel manager and the highly competitive nature of the janitorial industry made Excel particularly vulnerable to unfair competition, trade secrets and confidentiality damages. As such, the exemption of these claims from the Agreement is justifiable[.]" Def. Reply at 5.
The same arguments were made, and dismissed, in Stirlen:
Stirlen, 51 Cal.App.4th at 1536-37, 60 Cal.Rptr.2d 138. The arguments that were insufficient in Stirlen remain insufficient here. Excel has failed to provide any other business justification for the lack of mutuality present in the Agreement, and has therefore failed to rebut the presumption of unconscionability.
In addition to the lack of mutuality, the Agreement is plagued by two other related
In Armendariz, the California Supreme Court adopted the District of Columbia Circuit's analysis of the five minimum requirements for a lawful arbitration of civil rights claims in the context of a mandatory employment arbitration agreement. 24 Cal.4th at 102-03, 99 Cal.Rptr.2d 745, 6 P.3d 669 (citing Cole v. Burns Intern. Security Services, 105 F.3d 1465, 1482 (D.C.Cir.1997) and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33-34, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)). The Armendariz court stated that a mandatory employment arbitration agreement is enforceable if it:
Id. at 102, 99 Cal.Rptr.2d 745, 6 P.3d 669.
Here, the only information about the ADRP is contained in the Handbook, which (1) states that it was designed and implemented by Excel, (2) provides for a hearing before an arbitrator selected by both sides and (3) implies the existence of other rules and procedures. See Shawver Decl., Ex. A at 8.
Excel argues that a more complete explication of the proposed arbitral procedures is unnecessary because "any missing terms in arbitration clauses must be implied consistent with the holding of Armendariz." Def. Reply at 8. While Excel is correct in its assertion that the Court may imply missing terms based on state law, the problem here lies not only in missing terms but also in implied and unexplained terms. The language of the Handbook indicates the existence of an employee grievance-filing procedure as
While these issues by themselves would not be enough to render the Agreement unenforceable, when viewed in conjunction with the other substantive inadequacies of the Agreement, they provide further support for the Court's belief that the Agreement, as a whole, is unconscionable.
Once a court has determined that one or more terms in an arbitration agreement are both procedurally and substantively unconscionable, the court must determine whether that unconscionability permeates the entire agreement to such an extent as to preclude the severing of any unconscionable terms and thus the salvaging of the contract. Armendariz, 24 Cal.4th at 122, 99 Cal.Rptr.2d 745, 6 P.3d 669; see also Ingle, 328 F.3d at 1180.
The procedural unconscionability of the Excel Agreement is based first on the fact that it is part of an adhesive employment contract. This goes to the very nature of the Agreement and thus permeates the Agreement in its entirety. See Ingle, 328 F.3d at 1180. The substantive unconscionability is based in the lack of mutuality regarding the scope of claims addressed by the Agreement, Excel's unilateral right to alter the terms of the Handbook, and the unknown nature of Excel's ADRP. While the scope of the claims could theoretically be severed, as could the reference to the ADRP, doing so would require a literal gutting of the Agreement and subsequent rewriting. Courts are neither required nor permitted to rewrite unconscionable contracts. See Davis, 485 F.3d at 1084; see also Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1075, 130 Cal.Rptr.2d 892, 63 P.3d 979 (2003) ("Rather, the court would have to, in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms. Civil Code section 1670.5 does not authorize such reformation by augmentation, nor does the arbitration statute."). Severing the unconscionable terms is not a viable solution; therefore, this Court must find the Agreement as a whole unconscionable and thus unenforceable. Excel's motion to compel arbitration is therefore DENIED.
For the foregoing reasons and for good cause shown, the Court hereby DENIES Defendant Excel's Motion to Compel Arbitration. (Doc. 6.)
