Opinion
G056463
09-17-2019
PATRICIA L. RANDALL, Plaintiff and Respondent, v. VEROS CREDIT, LLC, Defendant and Appellant.
Littler Mendelson, Richard Falcone, Erica Gruver and Oliver B. Dreger for Defendant and Appellant. George Bean Law and George H. Bean for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2018-00969576) OPINION Appeal from an order of the Superior Court of Orange County, Walter P. Schwarm, Judge. Affirmed. Littler Mendelson, Richard Falcone, Erica Gruver and Oliver B. Dreger for Defendant and Appellant. George Bean Law and George H. Bean for Plaintiff and Respondent.
The trial court denied Veros Credit, LLC's (Veros) motion to compel arbitration of a lawsuit filed by its former employee, Patricia L. Randall. The court determined the arbitration agreement was both procedurally and substantively unconscionable. On appeal, Veros maintains the agreement was reasonable, or alternatively, that the offensive provisions may be severed. We conclude Veros's contentions lack merit and affirm the trial court's order.
FACTS
In October 2014, Veros hired Randall to work as a credit analyst. In exchange for $21.63 per hour, Randall reviewed credit applications, analyzed credit risks, determined the quality and profitability of loans, and interacted daily "with automotive dealerships to negotiate and capture approvals."
Veros gave Randall an employment agreement to sign, which contained mediation and arbitration provisions. Section 12 of the employment agreement, titled "Mediation and Arbitration," discussed the arbitration terms as follows: "All disputes between Employer, including but not limited to its officers, directors, owners, and agents, on the one hand, and Employee, on the other, relating in any manner whatsoever to the employment or termination of Employee, including without limitation disputes arising under this Agreement, shall be resolved first by mediation and, if not resolved, by binding arbitration."
In November 2017, Veros terminated Randall. She filed a lawsuit alleging retaliation and several wage and hour violations (unpaid wages, overtime, rest break premiums, etc.)
On February 16, 2018, Veros requested that Randall agree to arbitrate her claims, and she refused. The following month, Veros filed a motion to compel arbitration, and Randall opposed the motion. The trial court determined that although the level of procedural unconscionability was low, there was significant evidence of substantive unconscionability, and therefore, the agreement was "'permeated by unconscionability.'"
DISCUSSION
I. Standard of Review
"On appeal from the denial of a motion to compel arbitration, 'we review the arbitration agreement de novo to determine whether it is legally enforceable, applying general principles of California contract law. [Citations.]' [Citation.]" (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 892.) "Whether an arbitration provision is unconscionable is ultimately a question of law. [Citations.] Where, as here, the trial court rules on the question of unconscionability based on declarations that contain no meaningful factual disputes, we review the trial court's ruling de novo. [Citations.]" (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1250 (Higgins).)
Although Randall's brief suggests there was one disputed fact, we do not find any; nor does the trial court's written ruling or statements made at the hearing suggest that it was resolving a factual dispute.
II. Applicable Case Law
"Numerous cases observe that arbitration is generally favored under both the FAA and California law. [Citations.] At the same time, our Supreme Court has emphasized that 'although we have spoken of a "strong public policy of this state in favor of resolving disputes by arbitration" [citation], Code of Civil Procedure section 1281 makes clear that an arbitration agreement is to be rescinded on the same grounds as other contracts or contract terms. In this respect, arbitration agreements are neither favored nor disfavored, but simply placed on an equal footing with other contracts.' [Citations.] [¶] Thus, under both the FAA and California law, 'arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' [Citation.]" (Higgins, supra, 140 Cal.App.4th at p. 1247.) Unconscionability is one ground for revocation.
All further statutory references are to the Code of Civil Procedure, unless otherwise indicated.
"Unconscionability has both a procedural and a substantive element, the former focusing on 'oppression' or 'surprise' due to unequal bargaining power, the latter on 'overly harsh' or 'one-sided' results. [Citation.] '"The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability." [Citation.] But they need not be present in the same degree. "Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves." [Citations.] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.' [Citation.]" (Higgins, supra, 140 Cal.App.4th at p. 1249, citing Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).) A. Procedural Unconscionability
Randall argued the arbitration agreement was procedurally unconscionable for the following reasons: "(1) It is an oppressive adhesion contract; (2) it contains unfair surprise; (3) it fails to provide the rules of mediation despite mandating mediation; and (4) it fails to provide the correct rules of arbitration."
"Procedural unconscionability 'addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.' [Citation.] '"'"'Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. . . . Surprise involves the extent to which the terms of the bargain are hidden in a "prolix printed form" drafted by a party in a superior bargaining position.'"'"' [Citation.] '[P]rocedural unconscionability requires either oppression or surprise.' [Citations.] Both are not required." (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 243 (Carbajal).)
Here, there was evidence of oppression because the case involves a preemployment arbitration agreement. "'It is well settled that adhesion contracts in the employment context, that is, those contracts offered to employees on a take-it-or-leave-it basis, typically contain some aspects of procedural unconscionability.' [Citations.] As the Supreme Court repeatedly has explained, 'in the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.' [Citations.]" (Carbajal, supra, 245 Cal.App.4th at p. 243.)
Veros's director of human resources, Melody Vazquez, submitted a declaration stating the company's employment agreement was presented to employees "as part of the onboarding process." Veros argues Randall, who had the burden of proving unconscionability (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 911 (Sanchez)), failed to present evidence she did not have an opportunity to negotiate the employment agreement or the circumstances of its execution. Such evidence would have bolstered her claim. Nevertheless, "because the imbalance of bargaining power is apparent from the relationship between the parties" Randall, an hourly paid employee, was not required to show she attempted to negotiate terms of employment with the company. (Carbajal, supra, 245 Cal.App.4th at p. 244; Sanchez, supra, 61 Cal.4th at p. 914 ["in the context of consumer contracts, we have never required, as a prerequisite to finding procedural unconscionability, that the complaining party show it tried to negotiate standardized contract provisions"].)
The trial court also determined there was some evidence of surprise. Veros did not attach a copy of the arbitration rules, but provided a Web address (URL) leading to an inapplicable set of arbitration rules rather than the intended rules. "'"Numerous cases have held that the failure to provide a copy of the arbitration rules to which the employee would be bound, supported a finding of procedural unconscionability."' [Citations.] As each of these cases explained, the failure to provide a copy of the governing rules ' contributes to oppression because the employee "is forced to go to another source to find out the full import of what he or she is about to sign—and must go to that effort prior to signing."' [Citation.] The level of oppression is increased when . . . the employer not only fails to provide a copy of the governing rules, but also fails to clearly identify which rules will govern so the employee could locate and review them. [Citations.]" (Carbajal, supra, 245 Cal.App.4th at pp. 244-245.) While some appellate courts have reached a different conclusion, those unique cases have typically involved cases where the employees were sophisticated business people (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 691-692), or given substantial time to review the agreement (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1469).
Section 12(b) of the employment agreement provided, "Arbitration of claims shall be in accordance with the [r]ules for the resolution of employment disputes of JAMS, as amended from time-to-time which are found at https://www.jamsadr.com/rules-comprehensive-arbitration ('"JAMS" Rules'), and augmented by this Agreement." In Randall's opposition to the motion to compel, she maintained that when the above URL is retyped into a computer internet browser, it does not connect an employee to the "rules for the resolution of employment disputes." Instead, the URL opens a Web page containing JAMS's "'Comprehensive Arbitration Rules & Procedures.'" Randall argued she was a credit analyst, not a lawyer, and "[t]here is little chance she could have found the employment rules from the internet link in the Agreement."
As part of Veros's reply brief, its attorney, Erica Herczeg, declared that although "the link" did not directly connect to JAMS's employment dispute rules, it would connect an Internet user to a Web page where one of the headers was labeled "'RULES/CLAUSES.'" "When I pointed the mouse on that header, a drop down menu appeared under which one could select the JAMS 'Employment Arbitration Rules.'"
The trial court reached the following conclusions: (1) Herczeg's declaration acknowledged the link did not allow an employee to "directly access the arbitration rules relating to employment disputes"; (2) Herczeg's declaration suggested an employee could use the link and search the Web page "to find the rules [relating to employment disputes] without significant effort"; (3) "Despite the apparent ease by which a user could find the applicable rules, the Agreement did not explain that the user had to search the Web page to find the applicable rules[, but rather] . . . represented that the link would provide direct access to the arbitration rules." We agree this is an accurate portrayal of the evidence. We reach the same conclusion as the trial court that these facts demonstrate a "low level of procedural unconscionability because of this indirect access to the arbitration rules." The JAMS Web site lists numerous sets of arbitration rules that change depending on the nature of the dispute. Veros's URL reference did not adequately identify which arbitration rules governed.
Veros asserts there is no evidence Randall tried and could not locate the rules, or that she was confused after clicking the supplied link. This argument misses the mark for several reasons.
First, it is important to recognize the agreement did not provide a hyperlink to JAMS's Web page. The written agreement contained a typed URL, which required Randall to type the address into a computer's Web browser to access. Contrary to Veros's assertion on appeal, it was not a simple matter of clicking on "a link" to search the Web site for employment rules before signing the agreement.
Second, Veros admits the provided URL was inaccurate. Veros provided an address that opened a Web page devoted to JAMS's "Comprehensive Arbitration Rules," which differed from the "Employment Arbitration Rules," and were housed in a different location on JAMS's Web site. Veros argues this was a drafting mistake the court should have disregarded and "'regarded' that which was intended, namely, that the JAMS Employment Rules applied." We fail to see how this argument helps prove the agreement was not unconscionable. It we disregard the provided URL, then we must conclude Veros completely failed to provide a copy of the applicable arbitration rules, supporting the court's finding of procedural unconscionability. (Carbajal, supra, 245 Cal.App.4th at pp. 244-245.)
Third, the agreement stated the URL listed the applicable "Rules for the resolution of employment disputes of JAMS." It did not specify these "Rules" could be found if Randall went to the JAMS Web site, clicked on one of the tabs, and from the long list of "RULES/CLAUSES" clicked on the hyperlink called "Employment Arbitration Rules." Rather, the agreement specified these "Rules" could be found by using the URL provided, i.e., the URL connecting to JAMS's "Comprehensive Arbitration Rules and Procedures." An employee using the URL would have no reason to doubt the "Comprehensive" rules were the ones Veros selected for resolution of its employment disputes. It was procedurally unconscionable for Veros to require its newly hired employees to hunt through the JAMS Web site for specific employment-related arbitration rules, understand the "Comprehensive" rules did not apply, and after searching an outside source understand the full ramifications of agreeing to arbitration and the document they were about to sign.
III. Substantive Unconscionability
The trial court determined the arbitration agreement contained four substantively unconscionable provisions (Section 12 (a), (c), & (e) and Section 17). It concluded these multiple defects indicated the entire agreement was permeated by unconscionability. We reach the same conclusion and address each provision separately below. A. Section 12(a)
Section 12(a) of the agreement provided, "any party demanding arbitration before completion of mediation shall not be entitled to attorney fees or costs in the event said party is otherwise the prevailing party." The trial court determined this provision was substantively unconscionable because it prevented Randall from recovering statutory attorney fees if she was the prevailing party in arbitration, before completion of mediation.
Veros does not dispute the provision was unconscionable. Rather, it asserts the provision is "irrelevant" because the parties agreed to mediate the lawsuit prior to arbitration. It concludes the attorney fee waiver issue was moot, and therefore, the provision was not unconscionable.
"[C]ourts are required to determine the unconscionability of the contract 'at the time it was made.' [Citation.]" (Sanchez, supra, 61 Cal.4th at p. 920; citing Civ. Code, § 1670.5.) An unconscionability finding cannot be based on hindsight in light of subsequent events. (Setzer v. Robinson (1962) 57 Cal.2d 213, 217; Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1347.) The court appropriately determined the fee-waiver provision was unconscionable at the time it was made. B. Section 12(c) & 17
Veros's reliance on Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 417, is misplaced. The Supreme Court determined the trial court improperly "invalidated an entire arbitration procedure because of a purely speculative possibility that the commissioner might have the power, at some point, to withdraw the dispute from the normal arbitration process." (Ibid.) In the present case, the finding of unconscionability is not similarly speculative.
Section 12(c) of the agreement provided, "Subject to the penalty for failure to mediate before arbitration, the Arbitrator shall award the prevailing party attorney[] fees and costs."
Section 17 of the agreement contained similar "prevailing party" attorney fee provisions as follows: (1) "If any party to this Agreement shall bring any action . . . arising out of this Agreement, the losing party shall pay to the prevailing party all costs plus a reasonable sum for attorney fees" and (2) "For purposes of this section, attorney fees shall include, without limitation, fees incurred in . . . arbitration."
The trial court determined the "statutory claim for nonpayment of wages does not necessarily require [Randall] to pay [her employer's] attorney[] fees even if [it] is the prevailing party." (Citing Lab. Code, §§ 281.5, 1194, & 2802.) It concluded, the provision was substantively unconscionable because "it deprives [Randall of her] statutory right to relief from the payment of [her employer's] attorney[] fees" because the applicable Labor Code provisions "would not necessarily require" Randall to pay Veros's attorney fees if she lost her wage claims at a trial in superior court. We agree. Most of the applicable Labor Code provisions in this case have one-way fee shifting provisions that provide for the payment of prevailing employee attorney fees, but not for a prevailing employer.
Veros asserts the Supreme Court's holding in Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1247 (Baltazar), "precludes any finding of substantive unconscionability based on the language in [s]ection 12(c)." It argues the Supreme Court determined arbitration provisions that merely confirm procedural protections are not unconscionable. The Supreme Court's opinion is factually distinguishable and does not assist Veros.
In Baltazar, the court upheld a provision excepting preliminary injunctive relief likely to be used by employers, not employees, because that provision reiterated rights already existent under section 1281.8. (Baltazar, supra, 62 Cal.4th at pp. 1247-1248.) Specifically, the court considered whether a provision allowing "'either party hereto may apply to a California court for any provisional remedy'" was substantively unconscionable because the employer was more likely to use provisional judicial remedies to protect trade secrets and other confidential information. (Id. at pp. 1241-1242.) The court determined that even if it was "willing to accept for the sake of argument that employers are, in general, more likely than employees to seek provisional relief during the pendency of an arbitration" the arbitration clause at issue "does no more than recite the procedural protections already secured by section 1281.8[, subdivision] (b), which expressly permits parties to an arbitration to seek preliminary injunctive relief during the pendency of the arbitration." (Id. at p. 1247.) "Indeed, the wording of the provisional relief clause, which explicitly refers to the parties' right to seek preliminary injunctive relief '[p]ursuant to . . . [section] 1281.8,' makes clear that the clause merely confirms, rather than expands, rights available to the parties under that code section." (Ibid.) The arbitration provision did not place the employee plaintiff at "an unfair disadvantage" even if such remedies were more likely to be sought by the employer. (Id. at p. 1248.)
Veros argues the "prevailing party" provision here is similar to the one discussed in Baltazar because it "merely echoes the statutory language" of Labor Code section 218.5, subdivision (a). This section is the basis for one of Randall's causes of action. Veros fails to appreciate the limitations placed on attorney fee awards when there are certain wage and overtime claims.
"Labor Code section 218.5 requires the awarding of attorney[] fees to the prevailing party '[i]n any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.' This provision awards fees to the prevailing party whether it is the employee or the employer; it is a two-way fee-shifting provision. However, Labor Code section 218.5 'does not apply to any action for which attorney[] fees are recoverable under . . . [Labor Code s]ection 1194. [Citation.] Labor Code section 1194 provides that employees who prevail in an action for any unpaid 'legal minimum wage or . . . legal overtime compensation' are entitled to recover attorney[] fees. It is a one-way fee-shifting provision." (Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1248, italics added.) This exception does not preclude a prevailing employer from being awarded attorney fees related to other eligible claims under Labor Code section 218.5, i.e., a wage claim unrelated to minimum wage or overtime compensation. (Aleman v. AirTouch Cellular (2012) 209 Cal.App.4th 556, 583-584.)
Applying the above legal authority to this case, Veros cannot recover attorney fees if the underlying claim, as in the case before us, concerns minimum wages or overtime. (Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1429.) Accordingly, the arbitration provisions in sections 12 and 17, mandating the arbitrator "shall" award attorney fees to a prevailing employer in an action concerning overtime wages does not conform to the employee's statutory rights. Contrary to Veros's contention, the "prevailing party" attorney fee provision cannot be interpreted as being consistent with the parties' legal rights. It is not analogous to the provision relief clause in Baltazar.
We also reject Veros's contention the provisions mandating the arbitrator "shall" award the prevailing party attorney fees are speculatively unconscionable. It argues, "An unconscionability finding premised on fear or speculation that an arbitrator would award attorneys' fees to Veros under circumstances not otherwise permitted by the Labor Code cannot withstand scrutiny." It points out JAMS's arbitration rules, "Employment Arbitration Rule 24(g)" provides "the arbitrator may award attorney[] fees if 'allowed by applicable law.'" It maintains we must presume the arbitrator will interpret sections 12 and 17 as limiting its authority to award attorney fees to the prevailing party to circumstances permitted by Randall's statutory claims.
To support this argument, Veros cites to United States Supreme Court case authority rejecting generalized attacks and speculation the arbitrator may not follow the law when the parties have agreed to arbitrate statutory claims. (PacifiCare Health Systems, Inc. v. Book (2003) 538 U.S. 401, 406-407 [compel arbitration because cannot speculate arbitrator will wrongly interpret ambiguous remedial limitations]; Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 30 [generalized attacks that arbitration inconsistent with statutory rights "'far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes'"]; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) 473 U.S. 614, 626-627 [party may exclude statutory claims from arbitration agreement but "absent such compelling considerations, the [FAA] itself provides no basis for disfavoring agreements to arbitrate statutory claims"].) Essentially, Veros claims the trial court was wrong to suspect the arbitrator would ignore the unambiguous and mandatory attorney fee provision in favor of following JAMS's arbitration rules that may or may not have been properly incorporated into the agreement. Veros asserts the courts must have faith the arbitrator would ignore the word "shall" when interpreting the parties' agreement if the employer was the prevailing party on statutory claims precluding attorney fee awards to employers.
We find instructive Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 709 (Serpa).) In that employment dispute case, the former employee maintained the arbitration agreement was substantively unconscionable because, by requiring the parties to bear their own attorney fees, the employee was deprived of her "unwaivable statutory remedies available to her if she prevails on her FEHA claims at the arbitration. [Citations.]" (Ibid.) The appellate court rejected the employer's argument the provision in question simply stated the general "'American rule' that, unless expressly provided in contract or statute, each party to a litigation must pay its own attorney fees" and that the arbitrator would know to apply the attorney fee rules consistent with FEHA requirements. (Ibid.)
"Had the agreement to arbitrate been silent on the question of attorney fees, or provided for the recovery of attorney fees in an appropriate circumstance or in accordance with applicable law, we might agree with the [employer]. However, the attorney fee provision is not ambiguous. It expressly requires each party to bear his, her or its own attorney fees regardless of the type of action brought. It provides for this approach even while expressly stating the agreement governs actions for harassment and discrimination. For that reason, the provision limiting the recovery of attorney fees is unenforceable. [Citation.]" (Serpa, supra, 215 Cal.App.4th at pp. 709-710.)
Veros's employment agreement contains not just one, but two mandatory prevailing party attorney fee award provisions (sections 12(c) and 17). They both clearly and unambiguously state the parties have agreed the arbitrator "shall" impose all costs and attorney fees on the losing party. The plain language provides the prevailing party must be awarded attorney fees without any exceptions. Sections 12(c) and 17 do not contain language suggesting the parties intended to limit the scope of these provisions. Nor is there language qualifying the provision to say the losing party need only pay the costs and attorney fees employee would have been liable for in a civil forum.
Moreover, Veros's theory ignores the well-established rule that arbitrators and courts must apply the ordinary rules of contract interpretation when considering arbitration provisions. "'"'"The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in a technical sense or a special meaning is given to them by usage' [citation], controls judicial interpretation. [Citations.]" [Citations.] . . . [L]anguage in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.' [Citation.]"' [Citations.]" (EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1321.) "The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641.) To interpret the contract as somehow prohibiting attorney fees when the employer prevails on certain statutory claims would impermissibly render surplus the word "shall." "[J]udicial enthusiasm for alternative methods of dispute resolution must not in all contexts override the rules governing the interpretation of contracts." (Victoria v. Superior Court (1985) 40 Cal.3d 734, 738-739.)
Veros asserts this court must acknowledge the arbitrator is obligated to follow JAMS "Employment Arbitration Rule 24(g)," which permits arbitrators to award fees if "'allowed by applicable law.'" The generally worded provision, which may or may not have been incorporated into the agreement, does not supplant the more specifically worded attorney fee provisions. (See Rebolledo v. Tilly's, Inc. (2014) 228 Cal.App.4th 900, 920 ["[W]hen there are conflicting clauses the more specific clause controls the more general"].) It is also unclear whether JAMS's "Generalized" rules, referred to in the arbitration agreement, listed attorney fee provisions comparable to "Employment Arbitration Rule 24(g)."
Given the benefit of hindsight, Veros cannot now avoid it deliberately inserted substantively unconscionable clauses, limiting its employees' statutory rights to attorney fees, by asserting the trial court should have disregarded the plain language of the prevailing party clauses it drafted. (See Carbajal, supra, 245 Cal.App.4th at p. 252 [cannot avoid deliberate drafting choices limiting statutory rights]; Serpa, supra, 215 Cal.App.4th at pp. 709-710 [same].) C. Section 12(e)
Section 12(e) of the employment agreement provided, "The parties agree that damages would be an inadequate remedy for Employer in the event of a breach or threatened breach of this Agreement by Employee, and in the event of any such breach or threatened breach, Employer may either with or without pursuing any potential damage remedies, obtain and enforce an injunction prohibiting Employee from violating this Agreement and requiring Employee to comply with its terms." The trial court agreed with Randall that this provision was unconscionably one-sided because it permitted Veros to "use the civil courts to obtain an injunction regarding a dispute" arising from the agreement, but required Randall to arbitrate her disputes.
Veros argues, "Nothing in the provision prevents Randall from obtaining injunctive relief in court for any alleged breach of the Employment Agreement." This argument ignores section 12(a), which expressly mandates Randall must bring all disputes arising under the agreement first to mediation, and then to binding arbitration. Section 12(c) provides an exception to section 12(a), but only for the employer. As mentioned earlier, "The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641.)
Veros's next argument is that this court must interpret section 12(e) as doing nothing more "than recit[ing] the procedural protections already secured by section 1281.8, subdivision (b)." (Citing Baltazar, supra, 62 Cal.4th at p. 1247.) The arbitration agreement in Baltazar stated both parties could seek provisional remedies in superior court pursuant to section 1281.8. That statutory provision permits any party to petition the court for certain provisional remedies (receivership, temporary protective orders, writs of possession, preliminary injunctions and temporary restraining orders) during the pendency of an arbitration in specific circumstances where it is deemed necessary to preserve the effectiveness of the eventual award. (§ 1281.8, subd. (b).) In other words, the statute provides temporary remedies to preserve the status quo while the matter is being arbitrated.
Section 12(e) does not describe the availability of provisional and temporary remedies available during the pendency of the arbitration. Rather, the agreement gives Veros, not Randall, the right to seek a fully enforceable injunction. Specifically, the provision states Veros may "obtain and enforce an injunction prohibiting Employee from violating this Agreement and requiring Employee to comply with its terms." Because arbitrators do not have authority to issue or enforce permanent injunctions requiring an employee to abide by the terms of an employment agreement, Veros effectively gave itself special access to a civil forum. Randall is limited to the provisional relief described in section 1281.8. As we will explain, many courts have determined that provisions that carve out from arbitration claims permanent (not just preliminary) injunctive relief are substantively unconscionable. (See Carbajal, supra, 245 Cal.App.4th at p. 248.)
"A contractual provision is not substantively unconscionable simply because it provides one side a greater benefit. The party with the greater bargaining power is permitted to require contractual provisions that provide it with additional protections if there is a legitimate commercial need for those protections, but the stronger party may not require additional protections merely to maximize its advantage over the weaker party. [Citations.] 'As has been recognized "'unconscionability turns not only on a "one-sided" result, but also on an absence of "justification" for it.'"'" (Carbajal, supra, 245 Cal.App.4th at p. 248.)
"'Given the disadvantages that may exist for plaintiffs arbitrating disputes, it is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on "business realities." . . . If the arbitration system established by the employer is indeed fair, then the employer as well as the employee should be willing to submit claims to arbitration. Without reasonable justification for this lack of mutuality, arbitration appears less as a forum for neutral dispute resolution and more as a means of maximizing employer advantage.' [Citation.]" (Carbajal, supra, 245 Cal.App.4th at p. 248.)
"Applying these standards, courts repeatedly have found an employer-imposed arbitration agreement to be substantively unconscionable when it requires the employee to arbitrate the claims he or she is mostly likely to bring, but allows the employer to go to court to pursue the claims it is most likely to bring. [Citations.]" (Carbajal, supra, 245 Cal.App.4th at p. 248 [injunctive relief carve out provision substantively unconscionable]; Farrar v. Direct Commerce, Inc. (2017) 9 Cal.App.5th 1257, 1273 [carve-out provision exempting any claim based on "Assignment of Inventions & Confidentiality Agreement" substantively unconscionable]; Carlson v. Home Team Pest Defense, Inc. (2015) 239 Cal.App.4th 619, 634 [carve-out provision allowing employer to seek injunctive and other equitable relief in court substantively unconscionable]; Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 87 (Carmona) [provision giving employer choice of court or arbitration in pursuing breach of confidentiality agreement substantively unconscionable]; Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1147 [arbitration provision had shortened limitations period on employee wage claims, attorney fee provision in favor of employer, and exempted declaratory and injunctive relief from arbitration];
In Armendariz, the California Supreme Court recognized that there could be a reasonable justification for a one-sided arbitration agreement. (Armendariz, supra, 24 Cal.4th at p. 117.) But it emphasized that "'unless the "business realities" that create the special need for such an advantage are explained in the contract itself . . . it must be factually established.'" (Ibid.) Applying these legal principles, the Carbajal court held, "Here, the Agreement is substantively unconscionable on its face because it requires [the employee] to arbitrate 'any and all disputes' she has with [the employer], but it authorizes [the employer] to 'obtain an injunction from a court of competent jurisdiction' to restrain [the employee] from breaching the Agreement's nondisclosure and exclusive use provisions. [The employer] offers no justification for this blatantly one-sided provision." (Carbajal, supra, 245 Cal.App.4th at p. 249.)
Veros argues the extra protection is needed "[g]iven the potential trade secrets and confidential and proprietary information included within the Employment Agreement." As determined in Carmona, supra, 226 Cal.App.4th at page 87, offering such a conclusory statement, with "no explanation" is insufficient especially when "neither the record nor the briefing in this case offers facts justifying the one-sidedness." (See also Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 177 (Mercuro) [noting employer's argument "speedy and effective relief from the misappropriation of intellectual property assets can only be had in the court system" was "just argument with no evidence to support it"].) Moreover, in this case the carve-out injunction provision was broadly written to include permanent injunctions relating to all violations of the agreement, not just trade secret or confidentiality concerns.
Veros also asserts the provision "presents another theoretical issue" because it did not bring a claim of injunctive relief, rendering the issue "essentially moot." As stated earlier, a contract is evaluated for unconscionability at the time of execution. (Sanchez, supra, 61 Cal.4th at p. 920.)
Veros's carve-out injunction provision clearly states the reason for the advantage is because, "damages would be an inadequate remedy for Employer." Courts have rejected this kind of broadly worded claim. (See, e.g., O'Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th 267, 278 [noting arbitrators commonly provide equitable relief]; Mercuro, supra, 96 Cal.App.4th at p. 177 [rejecting argument similar provision necessary because "[m]onetary damages for the misappropriation of intellectual property assets are often difficult to calculate . . . and would not protect [defendant] from further misappropriation of such assets"].) Veros did not offer any explanation as to why arbitration does not provide an adequate forum to adjudicate claims of unauthorized disclosure of trade secrets or confidential information. It also does not suggest the added protections afforded by the temporary provisional remedies described in section 1281.8, subdivision (b), available to both parties, would be insufficient. We conclude Veros failed to establish any justification for the one-sided arbitration provision.
In closing, we wish to point out the significant potential exposure to civil litigation created by this one-sided provision. "[G]iven how [employers can] define[] confidential information and breach" including "things as mundane as pay rates and performance evaluations, and a breach can include sharing information with outsiders and merely sharing information with other employees of the company." (Carmona, supra, 226 Cal.App.4th at p. 86.)
IV. Permeated by Unconscionability
"The final question is whether the presence of the unconscionable provisions warrants a refusal to enforce the entire arbitration agreement, or whether the offending provisions may be limited or severed to avoid an illegal result. (Civ. Code, § 1670.5, subd. (a); Armendariz, supra, 24 Cal.4th at pp. 121-124.) 'The overarching inquiry is whether "'the interests of justice . . . would be furthered'" by severance.' [Citations.] 'If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.' [Citation.]" (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 119 (Martinez).)
As described above, Veros's arbitration agreement contains several serious defects. "'Such multiple defects indicate a systematic effort to impose arbitration on an employee . . . as an inferior forum that works to the employer's advantage.' [Citations.] The substantively unconscionable provisions cannot be cured by striking or limiting application of identifiable provisions. Rather, the arbitration agreement is so '"permeated" by unconscionability [it] could only be saved, if at all, by a reformation beyond our authority.' [Citations.]" (Martinez, supra, 118 Cal.App.4th at p. 119.) We conclude Veros's arbitration agreement was permeated with illegality and unconscionability, it was unenforceable, and the trial court correctly denied Veros's petition to compel arbitration of Randall's employment claims.
Veros's contention the trial court proceedings should be stayed pending arbitration is rendered moot by our affirmance of the trial court's order denying the motion to compel arbitration.
DISPOSITION
The order is affirmed. We deny Respondent's request for judicial notice of JAMS's mediation rules; the evidence was not necessary for us to resolve the appeal. Respondent shall recover her costs on appeal.
O'LEARY, P. J. WE CONCUR: ARONSON, J. IKOLA, J.