OPINION
WARD, J.
Plaintiff and appellant Edward J. Fittante (plaintiff) appeals a final judgment dismissing his wrongful termination action against his employer, defendant and respondent Palm Springs Motors, Inc. (the employer). The trial court had instead sent the matter to arbitration. In the context of granting the employer's motion to compel arbitration of plaintiffs employment dispute, the court also denied plaintiffs motion to require the employer to pay the arbitrator's fees.
Plaintiff asserts that the arbitration agreement, required as a condition of employment, was invalid as an unconscionable adhesion contract, under Armendariz v. Foundation Health Psychcare Services, Inc.,
FACTS AND PROCEDURAL HISTORY
As of March 1, 1996, plaintiff was employed as a mechanic or service technician at an automobile dealership in Beverly Hills, California. On March 1, 1996, plaintiff applied for a similar position with the employer, an automobile dealer in Palm Springs.
The job application consisted of several pages. Plaintiff signed the last page of the application, entitled "Applicant's Statement and Agreement" (applicant's statement). The applicant's statement included a provision for arbitration of disputes between the employee and the company. It is that arbitration provision which is at issue here.
The employer's service director showed plaintiff data indicating that work of the specialized kind that plaintiff performed was plentiful, and that he therefore could expect an income at least equal to that he was earning in Beverly Hills.
Plaintiff quit his Beverly Hills job and moved his family to the desert on the strength of the employer's representations. After he started working in Palm Springs, plaintiff discovered the representations were false. Plaintiff stayed on the job, even at a reduced income, because he "had very little choice financially."
Plaintiff worked for the employer from March of 1996 through February 19, 1998. The employer terminated plaintiff on the latter date, allegedly because plaintiff had defrauded a vehicle repair customer.
Plaintiff filed suit against the employer, alleging causes of action for fraud in the inducement, defamation, and wrongful termination in violation of public policy under Labor Code section 970 (fraudulently inducing an employee to move to take employment).
The employer responded to the action by filing a petition to compel arbitration. The court granted this petition and stayed plaintiffs action pending resolution by binding arbitration. Plaintiff then sought a clarifying order that the employer should be required to bear the entire cost of the arbitrator's fees. Plaintiff argued that the arbitration agreement was silent on the matter, and that his action included a statutory rights claim. The California Supreme Court in Armendariz had held that, where the employer exacts an agreement to binding arbitration as a condition of employment, the employee may not be required to pay unreasonable costs and arbitration fees when vindicating statutory rights.
Plaintiff now appeals.
ANALYSIS
I. Standard of Review
We are here concerned with an arbitration agreement in an employment context. The arbitration agreement is subject to the same rules of construction as any other contract, including the applicability of any contract defenses.
A motion to compel arbitration is, in essence, a request for specific performance of a contractual agreement. The trial court is therefore called upon to determine whether there is a duty to arbitrate the matter; necessarily, the court must examine and construe the agreement, at least to a limited extent.
As part and parcel of our review, we are concerned not only with validity in the sense of proper contract formalities, but also with defenses to the enforceability of a facially valid agreement. Put another way, an arbitration agreement is subject to the same defenses applicable to all contract disputes, including fraud, duress, or unconscionability.
II. Plaintiffs Contentions
Plaintiff attacks the validity of the arbitration agreement on several grounds. First, he appears to argue that the arbitration clause is too vague to be valid or enforceable. Second, he argues that the agreement constitutes an unconscionable adhesion contract. We conclude, (1) that the arbitration agreement is not unlawfully vague. We also determine (2) that the arbitration agreement is an adhesion contract. That determination begins, however, and does not end, our inquiry. On the question of the validity of the arbitration agreement, as a contract of adhesion, we further hold that, (a) except as to the "appeal" provisions, plaintiff has failed to show the agreement is unconscionable; (b) the "appeal" provision is severable from the remainder of the arbitration agreement; and (c) the remainder of the arbitration agreement is properly enforceable.
Another, preliminary, issue is implicit throughout plaintiffs argument, but not separately articulated as such. Plaintiff has alleged a cause of action asserting an unwaivable statutory right. The California Supreme Court in Armendariz held
The employer responds that Armendariz applies solely to claims under the Fair Employment and Housing Act (FEHA). Because plaintiff has not raised a claim under FEHA, the Armendariz factors do not apply.
We turn first to the question of the "Armendariz factors" and their applicability to plaintiffs statutory rights claim.
III. The Arbitration Agreement Satisfies the Armendariz Requirements
A. Plaintiff' Has Asserted a Statutory Right Subject to Armendariz Analysis
One of plaintiffs claims is that he was fraudulently induced to move to take employment, in violation of Labor Code section 970.
Although some statutory rights may be waived, other statutory rights are deemed unwaivable. As the California Supreme Court pointed out in Armendariz, "arbitration agreements that encompass unwaivable statutory rights must be subject to particular scrutiny."
The court found, naturally, that "the statutory rights established by the FEHA are `for a public reason.'"
Similarly, we conclude that Labor Code section 970 was enacted "for a public reason," and to vindicate a public policy. Its original purpose was "to protect migrant workers from the abuses heaped upon them by unscrupulous employers and potential employers, especially involving false promises made to induce migrant workers to move in the first instance."
B. The Arbitration Agreement Satisfies the Armendariz Criteria
An arbitration procedure passes muster under Armendariz if it "`(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. . .."'
i. The Arbitration Agreement Provides for Neutral Arbitrators
The arbitration clause here satisfies the first criterion. It incorporates the arbitration rules of the Federal Arbitration Act, and the procedures of the California Arbitration Act, each of which require neutral arbitrators. In addition, the agreement provides that any arbitrator selected shall be a retired California superior court judge. Retired superior court judges are trained and well-versed in the precepts and practices of neutral decision-making.
ii. The Agreement Provides for Appropriate Discovery
The arbitration agreement provides for "more than minimal" discovery. It states that the arbitration shall be conducted "in conformity with the procedures of the California Arbitration Act (Cal.Code Civ. Proc. Sec. 1280 et seq., including section 1283.05 and all other rights to discovery). . . ." (Italics added.) Code of Civil Procedure section 1283.05 provides for depositions and production of evidence, including producing documents, such as files, books and records, and producing persons to testify. It further provides for penalties and sanctions to enforce discovery obligations.
iii. The Agreement Implicitly, or by Incorporation, Provides for a Written Award
The arbitration agreement does not expressly provide for a written arbitration award, but the California Arbitration Act, in Code of Civil Procedure section 1283.4, does so provide.
iv. Remedies Are Not Restricted
Neither the arbitration agreement nor the Federal Arbitration Act or the California
v. The Agreement May Be Construed So That the Employee Is Not Required to Bear Unreasonable Costs or Arbitrators' Fees or Expenses
The sticking point, for purposes of our analysis here, is the final requirement, that the employee not be required to bear unreasonable costs or to pay arbitrators' fees as a condition of access to the arbitral forum.
At the time the court granted the employer's petition to compel arbitration, plaintiff sought an order that the employer be required to bear the costs of arbitration. The employer opposed the request on the ground that the Armendariz factors applied only to statutory claims under the FEHA, and that plaintiff here had raised no such claim. The court apparently agreed with the employer's interpretation of Armendariz, because it denied plaintiffs request that the employer be required to pay the arbitrator's fees.
We conclude that the trial court erred.
The employer's argument against the requested order was essentially the same argument with which we began our analysis: that Armendariz applies solely to statutory claims under the FEHA, and that, because plaintiff has raised no FEHA claim, Armendariz does not apply. We have already rejected that argument. By its own terms, Armendariz applies to any mandatory employment arbitration agreement which purports to subject unwaivable statutory rights claims to arbitration.
An unwaivable statutory right is one enacted for a public purpose, and may be recognized by the test question, would it contravene public policy to allow the parties to exact a waiver of its protection? Labor Code section 970 was manifestly enacted for a public purpose, to prevent unscrupulous treatment of employees who are induced to move on the promise of employment. It would also contravene public policy—i.e., it would entirely vitiate the public purpose of its enactment—if employers were allowed to exact an exemption from its provisions as a condition of employment. Employers should not be permitted to circumvent the statutory policy and insulate themselves from liability for the precise fraudulent, oppressive or unscrupulous conduct against which the statute is designed to protect. Plaintiffs claim under Labor Code section 970 meets this test.
The arbitration agreement itself is silent on the payment of arbitration fees. Instead, it incorporates the procedures of the California Arbitration Act. The California Arbitration Act, in Code of Civil Procedure section 1284.2, provides that, unless agreed otherwise, "each party to the arbitration shall pay his [or her] pro rata share of the expenses and fees of the neutral arbitrator, together with other expenses of the arbitration incurred or approved by the neutral arbitrator, . . ."
It has been held, however, that Code of Civil Procedure section 1284.2 is a default provision, which must yield to other statutory imperatives. For example, in Armendariz itself, the California Supreme Court pointed out that requiring an employee to bear significant costs, which would not be required if the same claim were brought in court, would operate to discourage and burden the exercise of statutory FEHA rights. An employee pursuing
Armendariz characterized its principle, that an employer "cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court," as a "rule" that would "ensure that employees bringing [unwaivable statutory] claims will not be deterred by costs greater than the usual costs incurred during litigation, costs that are essentially imposed on an employee by the employer."
Naturally, as Armendariz held, such costs as filing fees and other similar and usual administrative costs, are common to both court and administrative proceedings, and are therefore "`not problematic.'"
Here, to reiterate, the arbitration agreement is silent on the payment of fees, and merely incorporates the California Arbitration Act provisions. The relevant California Arbitration Act provision, Code of Civil Procedure section 1284.2, is a "default" provision which must yield to a more specific legislative intent. In the case of unwaivable statutory rights, the Legislature has deemed the policy underlying the relevant statute important enough to prohibit evasion by exculpatory waivers. In such cases, the "default" provision for pro rata sharing of arbitration expenses cannot apply.
Nothing in the present arbitration agreement prevents an interpretation consistent with the mandates of Armendariz. There are no express provisions which provide for the payment of fees and costs. The agreement is capable of construction consistent with the dictates of Armendariz. It thus satisfies, and does not contravene, the fifth Armendariz factor.
IV. The Arbitration Agreement Is Not Unlawfully Vague
Plaintiff urges that several terms of the arbitration agreement are vague, and that the agreement as a whole is therefore unenforceable. For example, plaintiff posits that the arbitration agreement's exemption for "exclusively monetary claims of less than $5,000" is vague because the term "exclusively monetary claims" is not defined, and no provisions explain whether claims of the same class may, or must, be aggregated. He also suggests that the agreement's provision for arbitration of "any dispute or controversy" requiring or allowing "resort to any court or other governmental dispute resolution forum" could be interpreted to require, e.g., workers' compensation claims or unemployment insurance claims, to be arbitrated.
Plaintiff further complains of the scope of the agreement, as purporting to cover disputes not only between the employee and the company, but including the employer's "owners, directors, and officers, and parties affiliated with its employee benefit and health plans," which "aris[e] from, relate[ ] to, or hav[e] any relationship or connection whatsoever with" the employee's "seeking employment with, employment by, or any other association with," the employer. Plaintiff argues that the agreement is so broad as to "define[ ] away [his] right of access to the [c]ourts even as to matters outside of his employment, and as against persons or entities who are unknown to [him] for whose actions [the employer] is not liable as well as matters well outside the scope of [plaintiffs] employment."
Plaintiff also attacks the arbitration agreement's provision that proceedings in arbitration must be governed by "controlling law," excepting, however, any "notions of `just cause,'" as unduly restrictive of the proper "controlling law" governing certain claims.
We find it unnecessary to dwell on plaintiffs claims of vagueness or overbreadth, inasmuch as they present only phantasms in the present context. Plaintiffs claims here all arise unquestionably out of his employment or application for employment with the employer. "`Just cause' is a term of art as employed in Collective Bargaining Agreements. Attendant upon that term are established concepts of industrial fairness and due process of both a substantive and procedural nature."
V. The Arbitration Agreement Is Generally Enforceable
Plaintiff contends that, even if the arbitration agreement satisfies the Armendariz requirements, it is nevertheless an
A. The Arbitration Agreement Is an Adhesion Contract
A contract of adhesion, generally speaking, is "`a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.' [Citation.]"
The arbitration agreement, contained within a standardized employment application, was presented to plaintiff on a "take it or leave it" basis. The employer "unquestionably had superior bargaining strength;"
B. Except for the "Appeal" Provisions, the Arbitration Agreement Was Not Unconscionable
Describing a contract as one of adhesion does not, however, affect its enforceability. Rather, an adhesion contract remains fully enforceable unless (1) the provision falls outside the reasonable expectations of the weaker party, or (2) the provision is unduly oppressive or unconscionable.
1. We Do Not Consider Plaintiffs Argument That the Arbitration Is Outside the Expectations of the Weaker Party
Plaintiff argues that the arbitration agreement is outside the reasonable expectations of an applicant for employment; he iterates essentially the same vagueness and overbreadth argument he raised earlier. Plaintiffs claims here are plainly within matters which may reasonably be expected to be covered by a proper employment arbitration agreement. That some hypothetical claims might be beyond the reasonable expectations of the adhering party is no reason to reject its application to a matter which is clearly within the reasonable expectations of the parties.
2. The Arbitration Agreement Is Not, In General, Unconscionable
"In determining whether an arbitration clause is unconscionable, courts generally apply a two-prong test. [Citations.]
"[U]nconscionability has both a `procedural' and a `substantive' element. [Citations.] [¶] The procedural element focuses on two factors: `oppression' and 'surprise.' [Citations.] `Oppression' arises from an inequality of bargaining power which results in no real negotiation and `an absence of meaningful choice.' [Citations.] 'Surprise' involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms. [Citations.]"
The procedural component of unconscionability was present here. "Oppression" results from inequality of bargaining position and the lack of negotiation or meaningful choice. Plaintiff clearly had no opportunity to negotiate the arbitration agreement; he was presented with the employment application, containing the agreement, on a "take it or leave it" basis. Such employment applications and arbitration agreements are common, not only in plaintiffs industry, but in many others as well. The employer was clearly in the superior bargaining position. Plaintiff had no meaningful choice; he could accept the agreement or forgo employment. "Surprise" was also present; all the terms of the arbitration agreement were "hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms."
On the other hand, substantive unconscionability has not been shown, except
The arbitration agreement found unconscionable in Stirlen v. Supercuts, Inc. required employees to arbitrate their claims against the employer, but allowed the employer to opt out of arbitration for its own claims. The arbitration clause restricted discovery, judicial review, and damages as to employee claims, without so restricting the company's claims against employees. "The Stirlen court did not hold that all lack of mutuality in a contract of adhesion was invalid. `We agree a contract can provide a "margin of safety" that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need without being unconscionable. [Citation.] However, unless the "business realities" that create the special need for such an advantage are explained in the contract itself, which is not the case here, it must be factually established.'"
Similarly, in Kinney v. United Healthcare Services, Inc.,
The arbitration agreement in Mercuro, supra, also required arbitration of all or most claims of interest to employees, but the company reserved to itself the right to litigate claims against the employees in the courts.
The California Supreme Court in Armendariz concluded that mandatory arbitration agreements in employment contracts must have some "modicum of bilaterality" to avoid substantive unconscionability.
A "modicum of bilaterality" appears in the arbitration agreement at issue here. Nominally, at least, both the employer and plaintiff are bound to submit their claims to arbitration, subject to the same rules and procedures, and the same advantages and disadvantages.
3. The "Appeal" Provision Is Unfairly One-sided
The appeal provision is the one exception to our finding of acceptable bilaterality. The arbitration agreement provides that "at either party's request, awards exceeding $60,000.00 shall be subject to reversal, modification, or reduction following review of the record and arguments of the parties by a second arbitrator who shall, as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment following court trial."
Although this provision applies facially to both parties, plaintiff urges, with some force, that mutuality is largely illusory. Although it is conceivable that an employer might have some claims against an employee which would result in a monetary award, including the possibility of an award of over $50,000.00, such claims would be rare.
In Saika v. Gold,
By parity of reasoning with Saika, the "appeal" clause here is unconscionably one-sided. It effectively "renders arbitration an illusory remedy for one party."
i. The Appeal Provision May Be Severed From the Remainder of the Arbitration Agreement
The invalidity of the appeal provision does not necessarily render the entire arbitration
As Armendariz instructs, "[t]wo reasons for severing or restricting illegal terms rather than voiding the entire contract appear implicit in case law. The first is to prevent parties from gaining undeserved benefit or suffering undeserved detriment as a result of voiding the entire agreement—particularly when there has been full or partial performance of the contract. [Citations.] Second, more generally, the doctrine of severance attempts to conserve a contractual relationship if to do so would not be condoning an illegal scheme. [Citations.]"
Existing precedent is consistent with severance of such an appeal clause. Saika "involved an arbitration agreement with a provision that would make the arbitration nonbinding if the arbitration award were $25,000 or greater. In Beynon v. Garden Grove Medical Group, supra, 100 Cal.App.3d 698, 712-713, 161 Cal.Rptr. 146, a provision of the arbitration agreement gave one party, but not the other, the option of rejecting the arbitrator's decision. The courts in both instances concluded, in Saika implicitly, in Beynon explicitly, that the offending clause was severable from the rest of the arbitration agreement."
We see no reason why the appeal provision should not be severable from the remainder of the arbitration agreement. The balance of the provisions are not unduly one-sided, so as to betray merely a desire to maximize advantage to the employer at the expense of the employee. Both parties are bound to the same rules, procedures, limits, advantages and disadvantages of arbitration generally. The appeal clause affects only a post-award proceeding, not the general conduct of the arbitration itself. The appeal clause is thus severable from the remainder of the arbitration agreement.
VI. Summary of Conclusions
Plaintiff has asserted an unwaivable statutory rights claim in addition to other claims. Under Armendariz, the arbitration agreement is enforceable if it meets the five Armendariz criteria. The agreement here, properly interpreted, does meet the stated criteria, including the requirement that an employee cannot be compelled to bear unreasonable costs or to pay arbitrators' fees as a condition of access to the arbitral forum. The court erred, therefore, in denying plaintiffs request that the employer be required to pay the arbitrator's fees.
The purported appeal clause is unconscionable, and thus unenforceable. The appeal provision does not render the entire agreement unenforceable, however; it may be severed from the arbitration agreement, and the remainder of the agreement may be given effect.
DISPOSITION
The order compelling arbitration is reversed and remanded with directions: the order should be modified to indicate that the employer must pay the costs of arbitration, and that the appeal clause of the arbitration agreement is unenforceable. As so modified, an order compelling arbitration is proper.
In the interests of justice, each party is to bear its own costs on appeal.
We concur: RAMIREZ, P.J. and HOLLENHORST, J.
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