by Sayema Hameed
The California Court of Appeal has issued a new decision holding an employee arbitration agreement to be unenforceable: Samaniego v. Empire Today LLC (First District, Div. Three, Case No. A132297; filed 4/5/12; publication ordered 5/7/12).
In Samaniego, carpet installers filed a class action against Empire Today, LLC (“Empire”), a national carpet and flooring business, alleging that Empire misclassified them as independent contractors. The complaint alleged numerous California Labor Code violations. Empire appealed from the superior court’s refusal to compel contractual arbitration of the carpet installers’ claims. The superior court found the arbitration agreement unconscionable under California law.
The Court of Appeal affirmed and held that the employee arbitration agreement was unconscionable and unenforceable under the California Supreme Court case Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83. The Court of Appeal further held that this issue was governed by California law and that the recent U.S. Supreme Court decision in AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___ [131 S.Ct. 1740, 179 L.Ed.2d 742] did not change the Court’s analysis.
The Court of Appeal found the arbitration language to be procedurally unconscionable based on the following facts: (1) the agreements were in English only, even though the plaintiffs, who perform manual labor, did not speak English as a first language and were not able to read English well or at all; (2) Empire denied the plaintiffs’ requests for a Spanish translation of the documents; (3) the plaintiffs were told they were required to sign the documents if they wanted to continue working for Empire; (4) Empire did not provide the plaintiffs with copies of the arbitration rules referenced in the documents; and (5) the arbitration language, which had no individual heading, was the second-to-last section in an 11-page, densely worded, single-spaced contract.
Taken together, these factors supported the trial court’s finding that the arbitration agreement was procedurally unconscionable, as the workers lacked a meaningful choice or opportunity to negotiate the terms, and the arbitration terms were hidden within the document.
The arbitration agreement was also substantively unconscionable because it contained a number of one-sided provisions in favor of Empire, including: (1) a shortening of the statute of limitations period to 6 months (the Labor Code allows employees three or four years to assert claims); (2) a one-way attorney fees provision that requires the plaintiffs to pay any attorney fees incurred by Empire, but imposes no reciprocal obligation on Empire; and (3) an exemption that allows Empire to seek declaratory or injunctive relief in court, while restricting to arbitration any and all claims that the plaintiffs might assert.
Interestingly, the arbitration agreement contained choice-of-law language stating that the agreement is governed by Illinois law, not California law. Nevertheless, the trial court declined to apply Illinois law and instead applied California law when ruling on Empire’s motion to compel arbitration. The Court of Appeal agreed with the trial court’s decision to apply California law, because the arbitration agreement was obtained by “improper means” and enforcing the arbitration clause under Illinois law would result in substantial injustice.
Like the recent Court of Appeal decision in Mayers v. Volt Management Corp. (filed February 2, 2012, publication ordered February 27, 2012, Fourth District, Div. Three, Case No. G045036) (see http://cabadahameed.com/chllp/california-court-finds-employee-arbitration-agreement-unenforceable/), the Samaniego case provides another example of the Court’s unconscionability analysis with respect to employee arbitration agreements. Employers should pay close attention to these cases as examples of “what not to do” when it comes to employee arbitration agreements.