A court invalidated an arbitration agreement as unconscionable and adhesive where it was presented to an employee as a condition of employment. The agreement was found procedurally unconscionable because the employee spoke Spanish and was only provided documentation in English, without any offer of translation or assistance in understanding the document. The agreement was also found substantively unconscionable because it permitted the arbitrator to shift all attorney's fees and costs to the employee in the event the employee was the losing party and severely limited discovery.
Cycad Management hired Jose Nunez to work as a gardener. In connection with accepting his employment, Nunez was asked to sign an agreement which provided for, "the arbitration of all disputes between the employee and company relating, in any manner whatsoever, to the employee or termination of the employee." This included all claims for wage, tort, statutory, discrimination and contract claims. The agreement also limited discovery to three (3) depositions and an aggregate of thirty (30) discovery requests, including subparts.
Nunez filed a lawsuit against Cycad asserting claims related to his employment. Several months later, Cycad's counsel demanded that the arbitration agreement be enforced and moved to compel arbitration.
Nunez fought the demand, stating that the agreement was signed without informed consent and was unconscionable. Nunez claimed that the document was presented to him as a "bunch of documents to sign; he was rushed; and he was told the documents referred to a change of company." Nunez argued that the fact that he was waiving his right to bring a claim and agreeing to arbitration as the only means of dispute resolution was not made clear to him. The agreement was also drafted in English, and Cycad was fully aware that Nunez could only read and understand Spanish. No offer of translation or explanation was made by Cycad when presenting Nunez with the agreement.
Nunez also asserted that he was told he must sign the documents or his employment would be terminated and that he did not receive a copy of the documents. Cycad disputed all of these allegations. Cycad asserted that Nunez was allowed to take the documents home and had several days to review them. Cycad stated it assumed a family member or co-worker would translate the contents to Nunez, and contended Nunez never requested additional help in reading them. The trial court agreed with Nunez and denied Cycad's motion to compel arbitration.
Preference for Arbitration Except When Unconscionable
Generally, arbitration agreements are “valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.) Although arbitration is encouraged as a preferred method of resolving disputes, arbitration agreements may be deemed unenforceable by courts where they are found to violate basic contract principles or exhibit traits of unconscionability. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83. The court may refuse to enforce an unconscionable contract. (Civ. Code, § 1670.5.)
In determining the enforceability of an arbitration agreement, courts first analyze whether it is unconscionable. To be unconscionable, it must be a contract of adhesion, or a contract entered into in which one party has superior bargaining power and the other is only given the opportunity to accept or reject it. If the court decides that a contract is one of adhesion, then the court will determine if it should be declared unenforceable. In order to find a contract unenforceable, the party contesting the contract must show that it is both procedurally and substantively unconscionable.
Procedural unconscionability "focuses on oppression or surprise due to unequal bargaining power. Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243.
Courts consider certain factors when analyzing a contract for oppression or surprise. Those factors are as follows:
- The amount of time an employee is given to consider a contract;
- The pressure exerted on the employee or potential employee to sign it;
- Its length and complexity;
- Employee or potential employee's educational and experience; and
- Whether the employee had legal assistance.
OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126–127
Here, it was clear that Cycad had superior bargaining power over the gardeners in its employ, including Nunez. Cycad even went as far to admit that the arbitration agreement was a contract of adhesion, but denied that it contained any degree of oppression or surprise. Cycad also asserted that Nunez had more than enough time to review the agreement and could have easily requested that a family member or a Cycad representative translate it for him.
Nunez countered by alleging that he did not have a fair opportunity to review the agreement and claimed it was forced upon him while he was working and in a rush. In addition, Nunez claimed that he was told the agreement addressed a change of company, but nothing was mentioned regarding the fact that he was signing away his right to a jury trial. Nunez further recounted that he was informed that he must sign the agreement or risk termination from his job.
The court ultimately found that, "the agreement was presented to Nunez in a manner that renders it a contract of adhesion, oppression and surprise." The court also determined that the contract between the parties was unconscionable because Cycad knew Nunez did not understand English and was unable to understand the contents of the agreement of his own accord. Cycad did not offer Nunez a Spanish language version, or suggest that they explain the agreement to him to ensure that he had a full understanding of what he was signing. "Procedural unconscionability arises when an arbitration agreement was neither provided in a Spanish-language copy nor explained to respondents who did not understand written English." Penilla v. Westmont Corp. (2016) 3 Cal.App.5th 205, 209.
In the case at hand, the agreement was seven pages long and the AAA rules attached were 41 single-spaced pages. It is unrealistic to think that a member of Nunez's family, or a co-worker, could translate that number of pages of legally worded content. Nunez was not given a real opportunity to understand the meaning of the agreement. This includes the provision that the arbitrator may award attorney's fees to the prevailing party as well as allocate filing, administrative and other costs. The court reasoned that these potential costs constituted an unfair surprise to Nunez because Cycad did not provide him with a fee schedule. In Penilla the court found that, "[f]ailure to provide documentation of arbitration fees supports a finding of unconscionability because it causes surprise." Cal. App.5th at 217.
The court concluded that Cycad's failure to provide Nunez with an arbitrator fee schedule and a Spanish language version of the agreement resulted in oppression and surprise that rose to the level of procedural unconscionability.
Substantive unconscionability considers "overly harsh or one-sided results." Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243. In determining whether an agreement is substantively unconscionable, a court will look to the following factors:
- Terms that unreasonably favor the more powerful party;
- Terms that impair the integrity of the bargaining process;
- Terms contrary to public interest or policy;
- Terms that attempt to impermissibly change basic legal duties; and
- Terms that undermine the non-drafting party's reasonable expectations.
Baltazar at 130.
If a court finds any evidence of substantive unconscionability, it will deem the agreement unenforceable. It does not take more than a low level of substantive unconscionability for the agreement to be thrown out. If "deceptive or coercive tactics" were used, this only weighs more strongly in favor of a ruling for the plaintiff.
In this case, the court found substantive unconscionability based upon the fact that Cycad indicated to Nunez that he had to sign the agreement in order to keep his job, Cycad failed to offer any explanation or a copy of the agreement in Spanish, and Cycad misrepresented the agreement's contents. . The court further considered, in making a determination of substantive unconscionability, that the agreement permitted the arbitrator to impose all attorney and filing fees upon Nunez. When employment is conditioned on signing an arbitration agreement, the employee cannot be forced to agree to pay these costs. Armendariz, supra, 24 Cal.4th at pp.110. The discovery limits outlined by the agreement were further evidence of substantive unconscionability. The Agreement limited discovery to “three depositions and an aggregate of thirty discovery requests of any kind, including subparts.” The court found that this "places an employee at a disadvantage in proving her claim while [the employer] is likely to possess many of the relevant documents and employ many of the relevant witnesses, unfairly preventing Nunez from vindicating statutory claims."
Courts have the option to sever unconscionable portions of an arbitration agreement and enforce the remainder, or to refuse to enforce the agreement in its entirety. Civ. Code, § 1670.5, subd. (a). If there is evidence of multiple issues with an arbitration agreement such that it indicates that there is an effort to force arbitration on a party with less bargaining power, a court is more likely to find the entire document defective and refuse to enforce any portion of it.
Here, the arbitration agreement was drafted in a language Nunez could not read, the employer misrepresented its purpose, did not give Nunez adequate time to review it, attempted to pass off provisions limiting discovery, and chilled Nunez's right to proceed with the litigation of any civil rights violations by forcing him to pay all fees if he lost. "Though public policy generally favors arbitration, when the agreement is rife with unconscionability, the overriding policy requires that the arbitration be rejected." Armendariz, supra, 24 Cal.4th at p. 127.
In this case, the court found that it was impossible to sever portions of the agreement to make it workable. Nunez did not understand the nature of the document he was signing and was not given the opportunity to decipher its provisions. Further, all fees would have been shifted to Nunez if he was the losing party in arbitration and Nunez was never provided a fee schedule prior to signing the document. Therefore, the court found that the agreement was unenforceable in its entirety.
The fact that this particular arbitration agreement was riddled with unconscionable provisions coupled with the inappropriate and unfair manner in which this agreement was presented to Nunez, resulted in the court finding that it was unenforceable. The court concluded, “In light of the pervasiveness of the unconscionable provisions related to arbitration and the fact that the purported scope of the arbitration provisions exceeded the plaintiff’s reasonable expectations, there are no isolated provisions that can be severed and the arbitration provisions as a whole are unenforceable.” The trial court's decision was affirmed and the defendant's motion to compel arbitration denied.