On April 19, 2023, the California Court of Appeal held that an employer’s arbitration agreement was unenforceable because of unconscionable terms found in other documents provided to employees during the onboarding process. The decision was certified for publication on May 10, 2023. In Alberto v. Cambrian Homecare (Apr. 19, 2023, No. B314192) ___Cal.App.5th, the Court of Appeal affirmed the trial court’s decision that a standalone arbitration agreement was unconscionable based on terms contained within the employer’s confidentiality agreement. Because the arbitration and confidentiality agreements were presented to the employee at the time of hire and related to the employee’s employment, the Court found that the employer’s confidentiality agreement was part of the “contract” to arbitrate, and the two agreements must be read together. The Court then reasoned that unconscionable terms in the confidentiality agreement permeated the arbitration agreement rendering it unenforceable. The Alberto decision is an important development for employers utilizing arbitration agreements along with other types of employment-related agreements as it creates a new risk of losing the benefits of arbitration.
Cambrian Homecare hired Jennifer Playu Alberto in 2019. Cambrian is a provider of in-home care services. Alberto was hired as an administrative employee. As part of the onboarding process, Cambrian required employees, including Alberto, to sign a standalone arbitration agreement and a separate confidentiality agreement. The arbitration agreement required most claims arising out of the employment relationship to be submitted to binding arbitration. The arbitration agreement also contained a class and representative action waiver. Cambrian did not sign the arbitration agreement, a point the trial court focused on but the Court of Appeal did not reach.
As is common in confidentiality agreements, Alberto agreed to keep Cambrian’s trade secrets confidential. Cambrian defined its trade secrets to include “compensation and salary data and other employee information.” The confidentiality agreement also required Alberto to consent to an immediate court injunction without Cambrian posting bond if there were an actual or threatened violation of the confidentiality agreement, and that if a lawsuit were filed to enforce the confidentiality agreement, the prevailing party was entitled to recover attorney’s fees.
On October 27, 2020, Alberto filed a proposed class action complaint against Cambrian in Los Angeles Superior Court alleging various wage and hour claims. On January 25, 2021, Alberto amended her complaint to add a claim for penalties under the Private Attorneys General Act (“PAGA”). Cambrian petitioned to compel Alberto’s individual claims to arbitration pursuant to the parties’ arbitration agreement.
The trial court denied Cambrian’s petition on two grounds. First, the trial court held there was no arbitration agreement formed because Cambrian failed to sign the agreement. Second, the arbitration agreement, which must be construed in conjunction with the confidentiality agreement, was procedurally and substantively unconscionable.
On appeal, the Second Appellate District affirmed the trial court’s denial of the petition to compel arbitration on unconscionability grounds. The Court did not reach the contract formation issue. In reaching its conclusion, the Court of Appeal reasoned that the arbitration and confidentiality agreements should be construed together pursuant to California Civil Code section 1642. Section 1642 states “several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” Though the arbitration agreement and confidentiality agreement were standalone documents and made no reference to each other, the Court nonetheless found the two agreements related because both agreements: (1) were presented on the same day: (2) were entered into as part of Alberto’s hiring; and (3) governed the dispute resolution process related to the employment relationship.
Therefore, the Court conducted its unconscionability analysis reading the two agreements as a single contract and affirmed the trial court’s finding that the arbitration agreement was unconscionable. The Court concurred with the trial court that the agreement to arbitrate was procedurally unconscionable as a contract of adhesion and substantively unconscionable because it was: (1) non-mutual; (2) forbade Alberto from discussing compensation and salary information; and (3) required a “wholesale” waiver of Alberto’s PAGA claims. The agreement was found to be non-mutual because the arbitration agreement required Alberto to submit her claims only in arbitration, while the confidentiality agreement allowed Cambrian to seek an immediate court injunction. The prohibition on discussion of compensation in the confidentiality agreement was held unconscionable because it contravened Labor Code section 232 that expressly allows employees to discuss wages. The wholesale wavier of PAGA was based on language contained in the arbitration agreement itself. Although the arbitration agreement contained an express severability clause, the Court held that the trial court did not abuse its discretion by refusing to sever the unconscionable provisions and enforcing the remainder of the arbitration agreement.
In light of the Alberto decision, employers should review their onboarding documents with counsel to determine the potential effect these documents may have on their arbitration agreements.