California Court of Appeals Invalidates Arbitration Agreement Based on Terms In Other Documents

June 23, 2023 – The California Court of Appeals has handed down a new ruling affecting how employers deal with employee contracts, and specifically, potential enforceability problems with arbitration agreements in the golden state. The case is Alberto v. Cambrian Homecare, 308 Cal.Rptr. 3d 230 (2023), and you can see the full text here.

I. Overview

Plaintiff Jennifer Alberto filed the wage and hour action against defendant Cambrian Homecare in California Superior Court. Cambrian petitioned for arbitration, citing various on-boarding documents executed and/or acknowledged by Alberto at the outset of her employment.

Despite there being no dispute that an arbitration agreement existed, the trial court denied the motion on the grounds that the arbitration agreement, when read in conjunction with other documents provided to and signed by Alberto at the same time, was unconscionable. On appeal, the court held that the same transaction rule applied, requiring all the on-boarding documents to be read together as one agreement. Within that agreement the court found unconscionable terms in both the arbitration agreement and other on-boarding documents. While the terms in the arbitration agreement would otherwise be enforceable, since they were read with the other documents the arbitration agreement became unenforceable.

II. “Same Transaction”

In reviewing the arbitration agreement, the court relied on the California Civil Code section 1642, which requires all documents relating to the same subject matter or transaction to be read as one agreement. Since the arbitration agreement and other on-boarding documents were all part of Alberto’s hiring, these documents all related to the same subject matter and were required to be read together. This required the court to review all three documents as one. It is important to note that this is different than incorporation, as the court points out. In this case the three documents did not incorporate one another, nor were they all incorporated into some larger agreement.

Something to think about: If your company has a variety of agreements, contracts, or other documents that employees must sign when they start with your company it is important to know if any of those documents could negatively affect the others. It is possible that you have terms in one document that make the others unenforceable, as in this case.

III. Unconscionability

The court held that when an arbitration agreement has a high degree of unconscionability the court will not enforce it. If an arbitration agreement is part of the same transaction as other documents, then unconscionability in those other documents could affect the enforceability of the arbitration agreement. Unconscionable terms are terms that oppress or surprise due to unequal bargaining power, are overly harsh, or have one-sided results.

When reviewing for unconscionability, courts look closely for mutuality. If the agreement applies equally to both employee and employer, then it is unlikely to be unconscionable. While some differences are expected, it is important not to overreach.
There are two types of unconscionable terms: procedural and substantive. For an arbitration agreement to be rejected, it must have a certain amount of each. In this case, the court found a low degree of procedural unconscionability within the arbitration agreement itself but a “high degree” of substantive unconscionability in the other on-boarding documents, specifically noting the following:

  • Cambrian was able to seek an immediate injunction outside of arbitration, whereas Alberto could only operate within arbitration;
  • Only Alberto was required to consent to an “order of an immediate injunction, without bond”;
  • Cambrian automatically could obtain attorney fees if it prevailed on said injunction;
  • Alberto was prohibited from discussing her wages (note this is not allowed under the Labor Code and the court held that any provision in direct contravention of the Labor Code is unconscionable); and
  • Alberto was required to waive her PAGA claims.

IV. What does this mean for you?

It is important to have skilled attorneys review your employee agreements to ensure that if read separately or together, they are enforceable. If your company has a variety of on-boarding documents that employees sign when they are hired, it may help to have your Kullman attorney review them to ensure this new case does not affect them. In the age of remote work, it is important to make sure you comply with the state laws where any of your employees may be working.

If you or your company are unsure if your agreements are enforceable, or just want to do a regular review, feel free to contact the Kullman attorney(s) with whom you regularly work.

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