On April 19, the California Court of Appeal issued a ruling that could have extensive repercussions for the enforceability of arbitration agreements. In a published decision, the Second Appellate District found an arbitration agreement to be unenforceable due to unconscionable terms in separate documents given to employees on the same day of the onboarding process.

The Court’s Holding:

In Alberto v. Cambrian Homecare, the plaintiff was presented with three stand-alone agreements during the onboarding process: an arbitration agreement, a confidentiality agreement and a confidentiality agreement addendum, all of which were executed the same day. After plaintiff filed a wage and hour lawsuit, Cambrian sought to compel arbitration, which the trial court denied.

The Court of Appeal confirmed the denial of arbitration, finding that the three agreements had to be read together as they were all presented to the employee at the same time and all related to the issue, resolving disputes relating to plaintiff’s employment. It then found that several terms of the confidentiality agreement were unconscionable, and this unconscionability permeated the arbitration agreement, rendering it unenforceable:

• First, the confidentiality agreement gave the employer the unilateral right to seek injunctive relief in court if the employee breached confidentiality, required the employee to consent to an immediate injunction without bond, and allowed the employer to obtain attorneys’ fees if it prevailed on an injunction. The Court found these terms (standard in many confidentiality agreements) were non-mutual and effectively rendered the arbitration agreement non-mutual as only the employer could enforce its rights in court.
• Second, the confidentiality agreement defined trade secrets to include “compensation and salary data and other employee information.” The Court of Appeal found this to be unconscionable because it violated Labor Code section 232, which prohibits an employer from requiring an employee to refrain from disclosing the amount of his or her wages. Furthermore, the court found this affected the employee’s ability to pursue wage and hour claims and thus rendered the arbitration agreement unconscionable.

In addition, the court found the arbitration agreement’s wholesale waiver of any class, collective, or representative actions to be unconscionable because it required the employee to waive her right to pursue an action under the Private Attorneys General Act (PAGA).

What This Means for California Employers:

Although this is only a single appellate court decision, plaintiff’s attorneys will likely seek to rely on this ruling to use a wide array of onboarding documents to identify potentially problematic terms in an attempt to avoid arbitration and remain in court.

Employers with arbitration agreements should review all of their onboarding agreements and documents to determine whether they might have any effect on the enforceability of arbitration, including the factors set forth in Armendariz v. Foundation Health Psychcare Services. Employers should pay specific attention to any documents that the employee is required to sign or otherwise accept, as well as documents wherein the employer retains unilateral rights not afforded to employees (such as the right to revise or alter the agreements). Employers may wish to consult counsel about revising such documents in an attempt to promote the enforceability of their existing arbitration agreements.

If you have questions or would like assistance reviewing your agreements in light of this new case, please contact us.

• J. Patrick Allen (pallen@wilsonturnerkosmo.com)
• Katie M. McCray (kmccray@wilsonturnerkosmo.com)

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant employment law developments as they occur. This should not be considered legal advice.