Mendoza v. Trans Valley Transport ( 2022 )

Filed 2/4/22; certified for publication 3/1/22 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
JOSE MARIO MENDOZA, H044372
(Santa Clara County
Plaintiff and Respondent, Super. Ct. No. 1-15 CV281073)
v.
TRANS VALLEY TRANSPORT et al.,
Defendants and Appellants.
In this wage and hours class action, we consider whether an arbitration provision
in an employee handbook, coupled with acknowledgement forms the class representative
signed, created a legally binding agreement to arbitrate the claims presented. Defendants
and appellants Trans Valley Transport (Trans Valley) and FTU Labor Contractors, Inc.
(FTU, jointly “Employers”) appeal from the trial court’s order denying their petition to
compel arbitration of a putative class action brought by a former employee—plaintiff and
respondent Jose Mario Mendoza—on behalf of truck drivers employed by Trans Valley
and FTU. The trial court found that the parties had not entered into a binding agreement
to arbitrate.
On appeal, Employers contend, based on a delegation clause in the arbitration
policy described in FTU’s employee handbook, that the question whether the parties had
agreed to arbitrate is for the arbitrator, not a court, to decide. They also argue that the
1
parties entered into an express agreement to arbitrate based on the arbitration clause in
the handbook and the acknowledgement forms. Alternatively, they argue that Mendoza
entered into an implied-in-fact agreement to arbitrate when he received the handbook and
worked for the company. Finally, they argue that the Arbitration Policy is not
unconscionable.
We conclude that Employers have forfeited their delegation clause argument by
reserving the issue for their reply in the trial court and not adequately briefing the issue
below or on appeal. However, we exercise our discretion to address the issue on the
merits, and hold that it was for a court to decide whether the parties had entered into an
agreement to arbitrate. We also conclude that in the circumstances of this case, the
parties have not entered into either an express or an implied contract to arbitrate their
disputes. We will therefore affirm the trial court’s order denying the motion to compel
arbitration.
I. FACTS
A. Mendoza’s Job Application
Mendoza applied for employment with FTU as a truck driver in June 2012. At
that time, he met with a company owner and a supervisor. Mendoza speaks Spanish and
cannot read or write English. He therefore could not read or fill out FTU’s 4-page
employment application form. Mendoza told the owner and the supervisor he could not
speak or read English. One or both of them spoke Spanish; they interviewed Mendoza
and filled out the application form for him.
According to that application, Mendoza’s highest level of education was the sixth
grade in El Salvador; he also went to truck driving school. Mendoza signed page 4 of the
employment application. There were several paragraphs above the signature line, which
included the following: “I certify that I have read and understood all of this employment
application. [¶][¶] If hired, I agree to abide by all the rules and policies of the
employer.”
2
FTU’s work is seasonal; most of the truck drivers are hired in February and let go
in November. FTU hired Mendoza as a temporary, interstate truck driver on
September 4, 2012. Mendoza worked for FTU for six weeks in September and October
2012, and from March until August in 2013 (6 months), and from March until July in
2014 (5 months).
B. Events on Date of Hire
FTU’s evidence included the declaration of Allen Rusler, FTU’s director of human
resources. Rusler stated that he met with each new hire for 45 to 90 minutes to go over
the employment documents, including the employee handbook (Handbook). If the new
hire did not speak English, an FTU employee translated for Rusler during the meeting.
During his meeting with each new hire, Rusler went over each provision in the
Handbook, including the arbitration policy. After reviewing the Handbook, Rusler asked
whether the employee had any questions, and after answering any questions, Rusler had
the employee sign the acknowledgement forms. Rusler’s custom and practice in 2012
was to give Spanish-speaking employees a Spanish-language version of the Handbook,
and he declared that Mendoza “would have been provided a Spanish version of the . . .
Handbook” when he was hired.
Mendoza did not recall receiving a copy of the English-language version of the
Handbook, but stated it is possible it was in a packet of documents he was given when he
was hired. Mendoza denied that he was ever given the Spanish-language version of the
Handbook.
C. Text of Handbook and Arbitration Policy
The first page of the 63-page FTU Employee Handbook began with the salutation
“Welcome to FTU!” and stated in relevant part: “Your FTU handbook is designed for
quick reference and general information. It is not intended as a contract of employment and
does not provide in detail all of the Company’s policies. However, it does provide an
3
overview about many of the Company’s personnel procedures, practices and policies that
affect your employment. [¶] The information contained in this handbook summarizes
policies, which are subject to changes and/or to deletions from time to time with the
exception of the Company’s at-will employment policy. . . . Consequently, all terms and
conditions of your employment may be changed or withdrawn at [the] company’s
unrestricted option at any time, with or without good cause.”
The following statement appeared at the top of page 2 of the Handbook: “THE
POLICIES BELOW ARE A CONDITION OF EMPLOYMENT WITH THE COMPANY”
(emphasis original). That statement is followed by several sections with the following
headings: “At-Will Employment Policy,” “Binding Arbitration Policy” (Arbitration
Policy), “An Equal Opportunity Employer,” “Protecting Our Union-Free
Environment,” “Customer Service and Safety,” SAFETY POLICY, and others
(emphasis original).
The Arbitration Policy, which was two and a half pages long and started on page 2 of
the Handbook, began with the following: “The Company utilizes a system of alternative
dispute resolution which involves binding arbitration to resolve all disputes which may
arise out of the employment context. Because of the mutual benefits (such as reduced
expense and increased efficiency) which private binding arbitration can provide both the
Company and the employee, employee and the Company both agree that any claim,
dispute, and/or controversy that either party may have against one another (including, but
not limited to, any claims of discrimination and harassment, whether they be based on the
California Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964,
as amended, as well as all other applicable state or federal laws or regulations) which
would otherwise require or allow resort to any court or other governmental dispute
resolution forum between the employee and the Company (or its owners, directors,
officers, managers, employees, agents, and parties affiliated with its employee benefit
and health plans) arising from, related to, or having any relationship or connection
4
whatsoever with your seeking employment with, employment by, or other association
with the Company whether based on tort, contract, statutory, or equitable law, or
otherwise, (with the sole exception of claims arising under the National Labor Relations
Act which are brought before the National Labor Relations Board, claims for medical and
disability benefits under the California Workers’ Compensation Act, and Employment
Development Department claims) shall be submitted to and determined exclusively by
binding arbitration.”1
The Arbitration Policy prohibited class, collective, and joint actions. It did not
prohibit administrative claims and investigations, including NLRB, DFEH, or EEOC
claims, but provided that after administrative remedies are exhausted, such claims must
go to arbitration. The Arbitration Policy did not mention wage and hour claims. The
Arbitration Policy contained terms regarding arbitration procedures, discovery, arbitrator
qualifications and immunity, extensions of time, the arbitrator’s decisions, the allocation
of costs and arbitrator fees, a waiver of the third-party exception in Code of Civil
Procedure section 1281.2, subdivision (c), and a delegation clause. The Arbitration
Policy concluded with the following language in all caps: “EMPLOYEE
UNDERSTANDS BY BEING EMPLOYED BY THE COMPANY, AS A CONDITION
OF EMPLOYMENT, THE EMPOLYEE [sic] AGREES TO THIS BINDING
ARBITRATION POLICY, WHICH MEANS THE EMPLOYEE AND THE COMPANY
BOTH GIVE UP RIGHTS TO TRIAL BY JURY AND RIGHTS TO PARTICIPATE IN
CLASS ACTION CLAIMS.”
In addition to the Arbitration Policy, the Handbook described FTU’s safety policy,
its alcohol and drug testing policy, employee benefits, company rules and regulations,
additional rules and regulations for truck drivers, and its “Driver Safety Service Awards
1
The second sentence of the paragraph we just quoted is 214 words long and
occupies 22 lines of text in the Handbook.
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Program.” Neither the Arbitration Policy nor the Handbook had signature lines for
employees or FTU to sign.
D. Forms Mendoza Signed When Hired
Employers’ motion to compel arbitration relied on four documents Mendoza
signed when he was hired: two acknowledgement forms and two checklist forms, all of
which were written in English. There was no Spanish-language version of those forms.
The first acknowledgement form was a two-page document entitled “Notice and
Acknowledgement” (First Acknowledgement). It advised Mendoza that he was
employed by “FTU . . ./PeopLease” and that the company “outsources certain employer-
related functions to PeopLease.” The First Acknowledgment stated in relevant part:
“You will be required to abide by all applicable rules and policies, including but not
necessarily limited to those set forth in the [Handbook].” Above the signature line, the
form stated, “I have read the above Notice and Acknowledgment and agree to its terms.”
The second acknowledgment form was entitled “Employee Acknowledgement”
(Second Acknowledgment). It stated: “This is to acknowledge that I·have received my
personal copy of the . . . Employee Handbook[]. In consideration of my employment
with the Company, I hereby agree to read, observe, and abide by the conditions of
employment, policies and rules contained in this Handbook. I understand that this
Handbook is designed for quick reference and that it sets forth many but not all of the
Company’s policies and guidelines under which the Company operates. I also
acknowledge that this handbook and the policies contained herein are not in any way
intended as a contract of employment. [¶] I understand that the policies and procedures
described in this handbook are for purposes of information only, and with the exception
of the Company’s at-will employment policy, may be amended or modified by the
Company at any time, with or without prior notice.”
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When first hired on September 4, 2012, Mendoza also signed a “Driver New
Hire/Rehire Checklist,” which listed 15 documents he filled out or received in the hiring
process, including the Handbook. (The checklist did not state whether Mendoza received
the English- or Spanish-language version of the Handbook.) Just before the signature
line, the checklist stated: “I acknowledge I have received all items listed above and
questions regarding these items have been explained to me to my satisfaction.” Mendoza
signed an almost identical checklist when he was rehired on March 6, 2014.
Mendoza does not dispute that he signed the acknowledgement forms and the
checklists. In a declaration, he stated that he could not read any of these forms and did
not understand them. He also declared, “When they gave me these documents, I was not
given any translation of the documents or explanation about what they said. I was only
told that they had something to do with insurance and I had to sign them if I wanted to
work for [Trans Valley].”2 Mendoza also declared that no one ever said anything to him
“about signing any kind of contract . . . or entering into an arbitration agreement.” He
had no intention of signing a contract or agreeing to arbitration. All he knew is he had to
sign the documents they gave him, which he could not read, if he wanted to work for
Trans Valley.
II. PROCEDURAL HISTORY
In May 2015, Mendoza filed a putative class action complaint against Trans
Valley and FTU (hereafter jointly Employers) asserting claims on behalf of truck drivers
2
FTU’s evidence included a form entitled “FTU . . . DOT Qualified Driver File
Checklist,” which contained a list of 20 documents described as “[p]aperwork needed in
files.” Number 15 on the list was “Employee Acknowledgment handbook receipt.” The
words “Checked by,” the dates “12-18-12” and “12-18-13,” and an unidentified person’s
initials were on the bottom of the form. Mendoza declared that the initials on the form
were not his, he did not fill out this form, and was not even working for the company on
the two dates indicated.
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who worked for Employers. In June 2015, the trial court issued an order deeming the
case a complex civil case and staying discovery.
A few months later, Mendoza filed a first amended complaint (the operative
pleading), which alleged causes of action for: (1) failure to pay minimum wages (Lab.
Code, §§ 1194, 1197); (2) failure to provide rest periods (Lab. Code, § 226.7); (3) failure
to provide meal periods (Lab. Code, § 226.7); (4) unfair competition (Bus. & Prof. Code,
§ 17200 et seq.); (5) failure to provide accurate wage statements (Lab. Code, § 226); and
(6) failure to pay all wages owed upon termination (Lab. Code, §§ 201-203). Employers
answered the first amended complaint, and FTU filed a cross-complaint against
PeopLease, LLC (PeopLease). PeopLease answered the cross-complaint.3
In May 2016, Employers filed a motion to compel arbitration and to stay the
litigation, which was heard in November 2016. The evidence in support of the motion
consisted of the declaration of Employers’ counsel, in which she purported to
authenticate FTU’s documents.4
Mendoza opposed the motion, arguing that the Handbook, which stated that it was
not a contract and was merely for informational purposes, did not create a binding
agreement to arbitrate. He argued that any agreement to arbitrate was void for lack of
mutual consent or voidable on the grounds of unilateral mistake, that he was deceived
into signing the acknowledgement forms, and that the class action waiver was not
3
None of the pleadings are in the record. On the court’s own motion, we have
augmented the record to include a copy of the first amended complaint, which we
obtained from the trial court. We have also taken judicial notice of the trial court’s
register of actions as of February 8, 2017, a copy of which was attached to appellant’s
notice of appeal lodged in this court. (Evid. Code, §§ 452, subd. (d); 459.) Our
description of the pleadings is based on those documents.
4
Employers’ evidence included a blank copy of a 3-page arbitration agreement
form. Their moving papers stated that starting in March 2015—after Mendoza left
FTU—Employers started having their employees sign a “Binding Arbitration
Agreement” that was separate from the Handbook. Employers did not claim that
Mendoza “signed or even received” that agreement.
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enforceable. Mendoza objected to Employers’ evidence on the grounds that it was
hearsay and lacked foundation, that Employers’ counsel lacked personal knowledge of
the matters stated in her declaration, and that FTU’s documents had not been properly
authenticated.
In reply, Employers argued that an agreement to arbitrate may be based on the
acknowledgement of receipt of an employee handbook where, as in this case, the
arbitration policy is a condition of employment and the employee accepted the position.
They asserted that it did not matter that Mendoza could not read or speak English, that he
signed the documents at his own peril, that his signature was a manifestation of his
assent, and that Employers were entitled to rely on his assent. They argued that there was
no unilateral mistake, since Mendoza knew his English was limited, but signed the
documents anyway. Employers argued, for the first time, under a heading about the
enforceability of the class action waiver, that under the Arbitration Policy’s delegation
clause, questions regarding the validity and enforceability of the arbitration agreement—
including the class action waiver—were for the arbitrator to decide, not the court.
The trial court found that the declaration of Employers’ counsel “provides no
indication that [counsel was] personally familiar with or able to authenticate FTU
documents” and sustained Mendoza’s objections to Employers’ evidence. The trial court
held these were “fundamental defects” that required the denial of the motion. The court
also provided “its view on the parties’ substantive arguments” and concluded that a
handbook that the employer itself characterizes “as informational and non-contractual in
nature should not be construed as a contract.” The court held “that where an arbitration
provision is provided to an employee within a handbook that is repeatedly characterized
as noncontractual in nature, and the employee receives no other form of notice that he
will be deemed to have consented to arbitration by commencing or continuing his
employment, there is no ‘clear’ agreement to arbitrate.” The trial court denied the motion
without prejudice “so that the evidentiary issues could be cured.”
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Employers filed a second motion to compel arbitration and stay the litigation.
Their moving papers included the declaration of Rusler, who had personal knowledge of
the documents used in the hiring process. Employers argued that the Handbook and the
forms Mendoza signed created an express agreement to arbitrate, since the Arbitration
Policy was a condition of Mendoza’s employment. Alternatively, they argued that the
Handbook and other documents created an implied agreement to arbitrate, which
Mendoza consented to by working for FTU. Finally, Employers argued the Arbitration
Policy was not unconscionable and therefore enforceable. Employers did not present any
argument regarding the delegation clause in their moving papers for their second motion.
In opposition to the second motion, Mendoza argued that it did not matter that the
Arbitration Policy described arbitration as a condition of the employment because the
Arbitration Policy provided that its terms could be changed at any time by Employers,
and since the forms he actually signed did not mention arbitration, they did not put him
on notice that he was bound by the Arbitration Policy. Mendoza renewed his contentions
that the Arbitration Policy failed for lack of mutual consent or based on unilateral mistake
and that the class action waiver was unenforceable. Mendoza did not respond to
Employers’ unconscionability argument.
As before, Employers argued in their reply, under a heading about the class action
waiver, that under the Arbitration Policy’s delegation clause, the validity and
enforceability of the Arbitration Policy, as well as the question whether the class action
waiver is enforceable, are for the arbitrator, not the court to decide.
The trial court adopted its prior order and denied the motion to compel arbitration.
The court’s orders did not address Employers’ contention that the agreement was not
unconscionable or their assertions regarding the delegation clause. Employers did not
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request a statement of decision under Code of Civil Procedure section 1291.5 Employers
timely appealed.
III. DISCUSSION
A. Employers’ Contentions on Appeal
Employers raise four issues on appeal. First, based on the delegation clause in the
Arbitration Policy, they argue that the trial court lacked jurisdiction to determine the
enforceability of the Arbitration Policy because the parties had delegated that question to
the arbitrator. Second, they allege that there was a binding agreement to arbitrate. Based
on the language of the acknowledgement forms and the Arbitration Policy, Employers
assert that there was an express agreement to arbitrate. Alternatively, citing Harris v.
Tap Worldwide LLC (2016) 248 Cal.App.4th 373 (Harris), they argue that Mendoza
entered into an implied-in-fact agreement to arbitrate when he received the Handbook
and worked for the company. Third, Employers assert that Mendoza’s signature on the
acknowledgement and checklist forms constituted an objective manifestation of his
understanding and consent to arbitration, in spite of the fact that he could not read or
understand the forms. Fourth, they argue that the Arbitration Policy is not
unconscionable. Employers urge us to reverse the trial court’s order denying the motion
to compel arbitration and direct it to order the matter to arbitration.
B. The California Arbitration Act Applies in this Case6
Both state and federal law have statutory schemes for the enforcement of
arbitration agreements. The California Arbitration Act (§§ 1280 et seq., sometimes
5
All undesignated statutory references are to the California Code of Civil
Procedure.
6
Although not raised by the parties, we determine that the arbitration agreement
applies to Trans Valley, and it was entitled to compel arbitration. The employment
application, Handbook, acknowledgement forms, and checklists all state that the
employer is FTU and do not mention Trans Valley. The Handbook and other forms refer
to the “Company” but do not expressly define who the company is. But since both FTU
and Trans Valley moved to compel arbitration, we conclude that Trans Valley has
11
CAA) sets forth “a comprehensive statutory scheme regulating private arbitration in this
state.” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (Moncharsh).) The Federal
Arbitration Act (FAA, 9 U.S.C. §§ 1-14) governs contractual arbitration in written
contracts involving interstate or foreign commerce. (9 U.S.C. §§ 1, 2.)
As a threshold matter, we must determine which body of law—the FAA or the
CAA—applies to the issues presented here, since the two statutory schemes apply
different standards and presumptions. The FAA embodies a strong federal policy
favoring arbitration. “Congress enacted the FAA in 1925 to remedy the general hostility
of American courts to the enforcement of arbitration agreements. To effectuate that
purpose, the FAA compels judicial enforcement of a wide range of written arbitration
agreements, notwithstanding any state substantive or procedural policies to the contrary.
(Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 111 . . . (Circuit City);
[citation].) When the FAA applies, it preempts any state law rule that ‘ “stand[s] as an
obstacle to the accomplishment of the FAA’s objectives.” ’ ” (Muller v. Roy Miller
Freight Lines, LLC (2019) 34 Cal.App.5th 1056, 1062 (Muller).)
“The FAA’s basic coverage provision, section 2, makes the FAA applicable to
contracts ‘evidencing a transaction involving commerce.’ (9 U.S.C. § 2.) Courts broadly
construe section 2 to ‘provide for the enforcement of arbitration agreements within the
full reach of the Commerce Clause.’ [Citation.] ‘Accordingly, in most cases, the FAA
mandates arbitration when contracts involving interstate commerce contain arbitration
provisions.’ ” (Muller, supra, 34 Cal.App.5th at p. 1062, citing Performance Team
Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1239 (Performance
Team).)
voluntarily joined in the arbitration proceeding that FTU seeks to compel. (Lovret v.
Seyfarth (1972) 22 Cal.App.3d 841, 859-860 [a person who has not signed an arbitration
agreement but who voluntarily joins in an arbitration proceeding may be estopped to
deny that it is a party to the agreement and bound by the award].)
12
But section 1 of the FAA provides a narrow, limited exemption from FAA
coverage for “contracts of employment of seamen, railroad employees, or any other class
of workers engaged in foreign or interstate commerce.” (9 U.S.C. § 1; Muller, supra, 34
Cal.App.5th at p. 1062.) The catchall phrase “any other class of workers engaged in
foreign or interstate commerce” in section 1 does not refer to all workers involved in
foreign or interstate commerce, but rather only to “transportation workers,” which means
“those workers ‘ “actually engaged in the movement of goods in interstate
commerce.” ’ ” (Muller, at p. 1062, citing Circuit City, supra, 532 U.S. at pp. 112, 121,
119.)
“Courts are somewhat divided on whether and when truckers and delivery drivers
qualify as ‘transportation workers.’ If a truck driver physically transports goods across
state lines, he or she undoubtedly qualifies as a transportation worker under section 1.”
(Muller, supra, 34 Cal.App.5th at p. 1065; id. at pp. 1068-1069 [truck driver who worked
for “a licensed motor carrier company” and who transported goods that originated across
state lines but did not personally transport goods state to state was a transportation worker
because he played “an integral role in transporting those goods through interstate
commerce”]; see also Performance Team, supra, 241 Cal.App.4th at p. 1240 [the most
obvious case where the exemption applies is where the plaintiff directly transports goods
in interstate commerce, such as an interstate truck driver]; Nieto v. Fresno Beverage Co.,
Inc. (2019) 33 Cal.App.5th 274 (Nieto) [exemption applied to delivery driver making
deliveries exclusively within California where the employer sold and distributed goods
that originated in other states and countries]; Betancourt v. Transportation Brokerage
Specialists, Inc. (2021) 62 Cal.App.5th 552 [exemption applied to “last-mile delivery”
driver who transported packages from distribution warehouse to buyers since goods
originated from all over the United States].)
While the First Acknowledgment described Mendoza’s position as “Interstate
truck driver,” there is no evidence in the record on the question whether Mendoza
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transported goods across state lines or regarding the nature or origin of the goods he
transported. The Arbitration Policy states that the “Company’s business and the nature of
your employment in that business affects interstate commerce,” the “arbitration shall be
controlled by” the FAA, and “[a]ny arbitration proceeding will move forward under the
Federal Arbitration Act.” In response to our request for supplemental briefing, the parties
agree that despite the language of the Arbitration Policy, Mendoza and the putative class
members are transportation workers within the meaning of section 1 of the FAA and that
the FAA therefore does not apply in this case. We shall therefore analyze the issues
presented under the CAA and California law.
C. General Principles Under the CAA and the Standard of Review
“California law strongly favors arbitration. Through the comprehensive
provisions of the California Arbitration Act (. . . § 1280 et seq.), ‘the Legislature has
expressed a “strong public policy in favor of arbitration as a speedy and relatively
inexpensive means of dispute resolution.” ’ (Moncharsh[, supra,] 3 Cal.4th 1, 9 . . . .)
As with the FAA . . . , California law establishes ‘a presumption in favor of arbitrability.’
(Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971
. . . [(Engalla)].)” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO).)
Under the California Arbitration Act, a written agreement to submit a controversy
to arbitration “is valid, enforceable and irrevocable, save upon such grounds as exist for
the revocation of any contract.” (§ 1281.) “ ‘ “[G]enerally applicable contract defenses,
such as . . . unconscionability, may be applied to invalidate arbitration agreements
without contravening” the FAA’ or California law.” (OTO, supra, 8 Cal.5th at p. 125.)
A party to an arbitration agreement may petition the trial court to order the parties to the
agreement to arbitrate a controversy that is covered by the agreement. (§ 1281.2.) The
court shall order arbitration, unless it determines that the right to compel arbitration has
been waived by the petitioner, that grounds exist for rescission of the agreement, or that a
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party to the agreement is also a party to a pending court action or special proceeding with
a third party. (§ 1281.2.)
Through the CAA, “the Legislature has expressed a ‘strong public policy in favor
of arbitration as a speedy and relatively inexpensive means of dispute resolution.’
[Citations.] Consequently, courts will ‘ “indulge every intendment to give effect to such
proceedings.” ’ ” (Moncharsh, supra, 3 Cal.4th at p. 9.) The scope of arbitration is a
matter of agreement between the parties and the powers of an arbitrator are limited and
circumscribed by the agreement or stipulation to arbitration. (Id. at pp. 8-9.)
“The trial court may resolve motions to compel arbitration in summary
proceedings, in which . . . ‘the trial court sits as a trier of fact, weighing all the affidavits,
declarations, and other documentary evidence, as well as oral testimony received at the
court’s discretion, to reach a final determination.’ ” (Lane v. Francis Capital
Management LLC (2014) 224 Cal.App.4th 676, 683 (Lane), quoting Engalla, supra, 15
Cal.4th at p. 972.) The party seeking arbitration bears the burden of proving the
existence of a valid arbitration agreement by a preponderance of the evidence, and the
party opposing arbitration bears the burden of proving any defense, such as
unconscionability by a preponderance of the evidence. (Pinnacle Museum Tower Assn. v.
Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle);
Engalla, at p. 972.) While the FAA preempts both state judicial rulings and legislation
disfavoring arbitration, “the CAA, being a state statute, ‘obviously does not prevent our
Legislature from selectively prohibiting arbitration in certain areas.’ ” (Tiri v. Lucky
Chances, Inc. (2014) 226 Cal.App.4th 231, 249, fn. 12 (Tiri), quoting Armendariz v.
Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 98 (Armendariz),
abrogated in part on another ground in AT&T Mobility LLC v. Concepcion (2011) 563
U.S. 333, 339-340.)
Although “California has a strong public policy in favor of arbitration and any
doubts regarding the arbitrability of a dispute are resolved in favor of arbitration,”
15
[citation] there is no public policy “that favors the arbitration of disputes the parties did
not agree to arbitrate. [Citation.]” (Aanderud v. Superior Court (2017) 13 Cal.App.5th
880, 890 (Aanderud).) The party opposing arbitration has the burden to show the
arbitration provision cannot be interpreted to cover the claims in the complaint. (Ibid.)
“ ‘When deciding whether the parties agreed to arbitrate a certain matter
(including arbitrability), courts generally . . . should apply ordinary state-law principles
that govern the formation of contracts.’ ” (Aanderud, supra, 13 Cal.App.5th at p. 890,
quoting First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944 (First
Options).) An arbitration agreement is governed by contract law. It is construed like
other contracts to give effect to the intention of the parties and the ordinary rules of
contract interpretation apply. (Aanderud, at p. 890.) If the contractual language is clear
and explicit, it governs. (Ibid., citing Civ. Code, § 1638 & Bank of the West v. Superior
Court (1992) 2 Cal.4th 1254, 1264.) “A petition to compel arbitration is simply a suit in
equity seeking specific performance of a contract.” (Aanderud, at p. 890.)
“An order denying a petition to compel arbitration is appealable. (. . . § 1294,
subd. (a).) When a trial court’s order is based on a question of law, we review the denial
de novo. [Citation.] Decisions on issues of fact are reviewed for substantial evidence.
[Citation.]” (Performance Team, supra, 241 Cal.App.4th at p. 1239.) “Where . . . the
evidence is not in conflict, we review the trial court’s denial of arbitration de novo.”
(Pinnacle, supra, 55 Cal.4th at p. 234.)
D. The Delegation Clause: Whether the Trial Court Had Jurisdiction to Determine
Whether the Parties Entered into an Agreement to Arbitrate
1. Delegation Clauses
Employers argue that the “trial court lacked jurisdiction to determine the
enforceability of the Arbitration Policy” because the Arbitration Policy contains a
delegation clause and the “delegation clause states that the arbitrator, and not the court,
will determine whether a claim is arbitrable.” Employers rely on the following paragraph
16
in the Arbitration Policy: “The arbitrator, and not any federal, state, or local court or
agency, shall have exclusive authority to resolve any dispute relating to the interpretation,
applicability, enforceability, or formation of the arbitration policy, including without
limitation any claim that this policy is void or voidable. Thus, the Company Employee
[sic] voluntarily waive the right to have a court determine the enforceability and/or scope
of this policy.”
It is well-settled under both state and federal law “that absent the parties’
commitment of the arbitrability decision to an arbitrator, disagreements over whether a
particular dispute is within the scope of an arbitration provision are ordinarily the
responsibility of a court.” (Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 249
(Sandquist), questioned on another ground as stated in Lamps Plus, Inc. v. Varela (2019)
587 U.S. ___, ___ [139 S.Ct. 1407, 1415-1417] (Lamps Plus).) There is a “strong
presumption that courts should determine the jurisdiction of arbitrators.” (Ibid.)
“ ‘[C]ourts presume that the parties intend courts, not arbitrators, to decide’ ” certain
gateway questions, including “ ‘disputes about “arbitrability,” . . . such as “whether the
parties are bound by a given arbitration clause,” or “whether an arbitration clause in a
concededly binding contract applies to a particular type of controversy.” ’ [Citations.]”
(Aanderud, supra, 13 Cal.App.5th at p. 891; accord Lamps Plus, supra, 587 U.S. ___,
___ [139 S.Ct. at pp. 1416-1417].) The question turns on “which issues logically or
necessarily must be resolved at the gateway, or threshold, before a case can feasibly go to
an arbitrator. One such logical condition precedent is whether, in fact, the parties agreed
to arbitrate at all; it makes no sense to compel parties to go before an arbitrator without
first determining they agreed to do so.” (Sandquist, supra, 1 Cal.5th at p. 254.)
“However, ‘parties can agree to arbitrate “gateway” questions of “arbitrability . . . .” ’
[Citation.]” (Aanderud, at p. 891, citing Rent-A-Center, West, Inc. v. Jackson (2010) 561
U.S. 63, 68-69 (Rent-A-Center).)
17
“It has long been settled that when parties have agreed to arbitration, challenges to
the validity of the underlying contract, including contract defenses such as fraud in the
inducement or illegality, are for the arbitrator to decide. [Citations.] This is because the
arbitration clause is viewed as separate from the underlying contract. [Citation.] Thus,
allegations that the main contract is unlawful or unconscionable does [sic] not affect the
enforceability of the arbitration clause. [Citation.]” (Nielsen Contracting, Inc. v. Applied
Underwriters, Inc. (2018) 22 Cal.App.5th 1096, 1107-1108 (Nielsen).)
“However, challenges to the validity of the arbitration clause itself are generally
resolved by the court in the first instance. [Citations.] An exception to this rule applies
when the parties have clearly and unmistakably agreed to delegate questions regarding
the validity of the arbitration clause to the arbitrator. [Citations.] Such delegation
clauses are generally enforceable according to their terms.” (Nielsen, supra, 22
Cal.App.5th at p. 1108, citing Rent-A-Center, supra, 561 U.S. at pp. 68-69, 71 and other
authority.)
“ ‘Just as the arbitrability of the merits of a dispute depends upon whether the
parties agreed to arbitrate that dispute, . . . so the question “who has the primary power to
decide arbitrability” turns upon what the parties agreed about that matter.’ [Citations.]
‘Although threshold questions of arbitrability are ordinarily for courts to decide in the
first instance under the FAA [citation], the “[p]arties to an arbitration agreement may
agree to delegate to the arbitrator, instead of a court, questions regarding the
enforceability of the agreement.” ’ (Pinela v. Neiman Marcus Group, Inc. (2015) 238
Cal.App.4th 227, 239 . . . (Pinela).) The examination of who has the primary power to
determine arbitrability is conducted, at least initially, through the prism of state law.
[Citation.]” (Aanderud, supra, 13 Cal.App.5th at pp. 891-892.)
18
2. Rent-A-Center
Citing Rent-A-Center, supra, 561 U.S. at page 70, Employers argue that since
Mendoza is challenging the Arbitration Policy as a whole, as opposed to the
enforceability of the delegation clause, “the validity and enforceability [of the Arbitration
Policy] is an issue for the arbitrator, not the Court.”
In Rent-A-Center, an employee who had signed an arbitration agreement in an
employment contract sued his former employer for employment discrimination. The
United States Supreme Court recognized that in cases involving the FAA, “parties can
agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have
agreed to arbitrate or whether their agreement covers a particular controversy.
[Citations.]” (Rent-A-Center, supra, 561 U.S. at p. 69.) The court explained that this
“merely reflects the principle that arbitration is a matter of contract. [Citation.] An
agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the
party seeking arbitration asks the federal court to enforce, and the FAA operates on this
additional arbitration agreement just as it does on any other.” (Id. at pp. 69-70.) “Thus, a
party’s challenge to another provision of the contract, or to the contract as a whole, does
not prevent a court from enforcing a specific agreement to arbitrate. ‘[A]s a matter of
substantive federal law, an arbitration provision is severable from the remainder of the
contract.’ ” (Rent-A-Center, at pp. 68-71.)
The court stated, “But that agreements to arbitrate are severable does not mean
that they are unassailable. If a party challenges the validity under § 2 of the precise
agreement to arbitrate at issue, the federal court must consider the challenge before
ordering compliance with that agreement under § 4.” (Rent-A-Center, supra, 561 U.S. at
p. 71.) The court observed that the provision that the employer in Rent-A-Center sought
to enforce was a delegation clause and explained that unless the employee challenged the
delegation clause specifically, the court must treat the delegation clause as valid under the
FAA and enforce it, leaving the employee’s unconscionability challenge to the validity of
19
the arbitration agreement as a whole for the arbitrator. (Id. at p. 72.) Since the employee
had challenged only the validity of the arbitration agreement as a whole and not the
validity of the delegation clause in the courts below, the Supreme Court concluded that
the employer’s argument regarding the delegation clause was uncontested. (Ibid.) The
court therefore held that the district court did not err in ordering that the employee’s
claim that the arbitration agreement was unconscionable, as well as the merits of the
employment discrimination claim, were to be heard by the arbitrator. (Id. at pp. 66-67,
76.)
Rent-A-Center addressed the question of who rules on a challenge to the
enforceability of a delegation clause: the court or the arbitrator? “The high court began
this analysis by confirming that a delegation clause—nested within the larger arbitration
agreement—must be viewed as an independent (‘severable’) contract.” (Nielsen, supra,
22 Cal.App.5th at p. 1108, citing Rent-A-Center, supra, 561 U.S. at pp. 67-76.) An
“argument that the arbitration agreement or the underlying contract is unenforceable is
not sufficient to trigger the court’s obligation to resolve contentions regarding the
enforceability of a severable delegation clause.” (Nielsen, at p. 1108, citing Rent-A-
Center, at pp. 71-76.) Since the employee in Rent-A-Center challenged only the validity
of the arbitration contract and never “even mention[ed] the delegation provision,” the
United States Supreme Court found that the arbitrator, and not the court, was to consider
the enforceability of the delegation clause. “The court reasoned that the delegation clause
must be viewed as a separate agreement nested within the arbitration agreement, and
unless the clause is directly challenged, the arbitrator must resolve all of the disputed
issues.” (Nielsen, at p. 1109, citing Rent-A-Center, at pp. 65-66, 72-76.)7
7
The California Supreme Court has not yet decided whether it will apply Rent-A-
Center to challenges to the validity of an arbitration provision made under the CAA when
the entire underlying contract is an agreement to arbitrate—which is what we have
here—as opposed to an arbitration clause in some other type of contract (i.e., an
employment or consumer contract). (Sonic-Calabasas A, Inc. v. Moreno (2011) 51
20
3. Forfeiture
Employers’ delegation clause argument is essentially that since the Arbitration
Policy contains a delegation clause that delegates multiple issues, including “formation of
the arbitration policy,” to the arbitrator, the contract formation issue at the heart of this
appeal is for the arbitrator to decide. This prompted us to ask: what was the effect of
fully litigating the contract formation question in the trial court? In our request for
supplemental briefing, we asked the parties: “Does the fact that appellants . . . argued the
merits of the contract formation issue (whether the parties had entered into an agreement
to arbitrate) in the trial court constitute a waiver or a forfeiture and therefore preclude
them from arguing on appeal that the contract formation question was reserved for the
arbitrator under the delegation clause in the Arbitration Policy?”
Mendoza states that he “does not contend that [Employers] waived their
delegation argument” by arguing the “merits of the contract formation issue in the trial
court.” He argues instead that they forfeited their delegation argument by failing to
preserve it in the trial court since they never specifically argued, as they now do on
appeal, that the trial court lacked jurisdiction to rule on the contract formation issue.
Mendoza argues that the main thrust of the delegation argument below was that it was for
the arbitrator to decide whether the class action waiver was enforceable, and that
Employers “belatedly” raised that issue in their reply.
Cal.4th 659, 688, fn. 12 (Sonic I), overruled on another ground in Sonic-Calabasas A,
Inc. v. Moreno (2013) 57 Cal.4th 1109 (Sonic II); Sonic I, at p. 688, fn. 12 [since the
employer did not argue that the arbitration agreement delegated responsibility to decide
whether the agreement was unconscionable or violated public policy to the arbitrator,
there was “no need to decide” whether Rent-A-Center applies to actions in state court or
whether the California Supreme Court would adopt a similar rule as a matter of state
law]; Knight, et al., Cal. Practice Guide: Alternative Dispute Resolution (2020 Rutter
Group) ¶ 5:150.4, p. 5-160 (Knight); see also Chin v. Advanced Fresh Concepts
Franchise Corp. (2011) 194 Cal.App.4th 704, 709.)
21
Employers contend that they have not waived the delegation clause issue because
they were required under section 1281.2 to prove the existence of an agreement to
arbitrate to obtain an order compelling arbitration, that they raised the issue below, and
that it is up to an arbitrator to “determine enforcement pursuant to the Delegation
Clause.” They also argue that this court has the discretion to excuse any forfeiture. In
light of the parties’ responses, we shall consider both whether the delegation clause issue
was properly preserved for appeal and whether it has been waived by arguing the merits
of the contract formation issue in the trial court.
In both of their motions to compel, Employers raised the delegation clause issue
for the first time in their reply papers under the heading “Whether the Class Action
Waiver is Enforceable or Not is a Decision for the Arbitrator.” In both replies, citing
Rent-A-Center, they argued that since Mendoza challenged the Arbitration Policy “in its
entirety versus the enforceability of the delegation clause, the arbitrator will determine
whether the agreement to arbitrate is enforceable.” Employers did not cite or discuss any
other cases on delegation clauses or develop this point further. In the next paragraph,
they argued that the questions whether the class action waiver violated public policy and
was unenforceable was for the arbitrator to decide on grounds unrelated to the delegation
clause.8
Employers argue that “[t]here is no evidence in the record supporting, or even
suggesting, a finding that the delegation provision was fraudulent, obtained under duress,
or is unconscionable.” But since Employers reserved this issue for their reply briefs
below, Mendoza did not have an opportunity to brief the delegation clause or present
8
On appeal, Employers complain that although they raised the delegation clause
issue below, the trial court failed to address it. In fact, the trial court’s orders did not
expressly address the effect of the delegation clause. But since Employers’ discussion of
the delegation clause was raised in a cursory fashion and buried at the end of their reply
papers under a heading about the class action waiver, we cannot fault the trial court for
failing to address the issue.
22
evidence attacking the delegation clause in the trial court. Since the delegation issue is
potentially dispositive, we question why, after being given the opportunity to renew their
motion, Employers did not raise the delegation clause as a threshold issue in their
opening points and authorities in support of their second motion to compel. And we are
troubled by the fact that Mendoza was not given an opportunity to brief this question or
present evidence relating to any contract defenses to the delegation clause in the trial
court.
“Appellate courts are loath to reverse a judgment on grounds that the opposing
party did not have an opportunity to argue and the trial court did not have an opportunity
to consider. [Citation.] In our adversarial system, each party has the obligation to raise
any issue or infirmity that might subject the ensuing judgment to attack.” (JRS Products,
Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal.App.4th 168.)
Notably, the employer in Rent-A-Center, who sought to compel arbitration, raised
the delegation clause in its motion to compel in the district court, as well as its reply. The
employee did not address the delegation clause in his opposition and focused his
arguments on the arbitration agreement as a whole. The employee also failed to address
this issue in the court of appeals. The high court concluded that since the employee had
not challenged the delegation clause below, it must treat the delegation as valid, “leaving
any challenge to the validity of the [arbitration agreement] as a whole for the arbitrator.”
(Rent-A-Center, supra, 561 U.S. at pp. 65, 72-73.) Similarly, the employers in Ajamian
v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771 (Ajamian) and Tiri raised the
delegation clause in their motions to compel. But unlike the plaintiff in Rent-A-Center,
the plaintiffs in those cases challenged the delegation clause as unconscionable in their
opposition in the trial court. Thus, the issue was squarely before the appellate courts,
which addressed the validity of the delegation clauses on the merits. (Ajamian, supra, at
pp. 780, 794; Tiri, supra, 226 Cal.App.4th at pp. 238, 245.)
23
Unlike the parties who moved to compel arbitration in Rent-A-Center, Ajamian,
and Tiri, Employers did not raise the delegation clause in their moving papers. As noted,
they first raised it in their reply papers in a cursory manner buried under an argument
heading about the class action waiver. Their argument consisted of a short paragraph that
cites Rent-A-Center. The point is otherwise undeveloped and could easily be overlooked
or considered part of their argument on the class action waiver. On this record, the trial
court may have impliedly found that Employers forfeited any argument regarding the
delegation clause by failing to adequately brief it in their motions. Moreover, we
conclude that Employers’ briefing in the trial court was insufficient to preserve the issue
for appeal.
Additionally, the right to arbitrate may be waived by “ ‘conduct so inconsistent
with the exercise of the right to arbitration as to constitute an abandonment of that
right.’ ” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187,
1201 (St. Agnes).) Submitting an issue to a judicial forum for resolution of arbitrable
issues, coupled with failure to request arbitration, has been found to constitute waiver of
the right to arbitrate. (Pulli v. Pony Internat., LLC (2012) 206 Cal.App.4th 1507, 1511,
1521 (Pulli).) Since the delegation clause is a separate agreement to arbitrate from the
Arbitration Policy, the question becomes whether Employers have forfeited any right to
arbitrate the contract formation issues they contend were delegated to the arbitrator by
fully litigating them in the trial court and, by extension, in this appeal.
Under California law, “judicial litigation of the merits of arbitrable issues . . .
waives a party’s right to arbitration.” (Doers v. Golden Gate Bridge etc. Dist. (1979)
23 Cal.3d 180, 188 (Doers), italics omitted.) Such an “approach . . . is similar to that
taken by the federal courts”; under federal law, waiver is found where a party has been
prejudiced by the litigation of arbitrable issues. (Ibid.; see also St. Agnes, supra,31 Cal.4th at p. 1203 [citing Doers favorably on this point]; Pulli, supra, 206 Cal.App.4th
at pp. 1511, 1521 [the party requesting arbitration may not submit the question of the
24
legality of the arbitration provision under Labor Code section 206.5 to the court on the
merits without waiving the right to have the arbitrator decide the issue]; In re Check
Account Overdraft Litigation (11th Cir. 2012) 685 F.3d 1269, 1274-1275 [party waives
right to arbitrate the threshold issue of unconscionability by submitting that question to
the court].)
In St. Agnes, that Supreme Court agreed that the six factors described in
Sobremonte v. Superior Court (1996) 61 Cal.App.4th 980, 992 were “relevant and
properly considered in assessing waiver claims.” (St. Agnes, supra, 31 Cal.4th at
p. 1196.) Two of those factors are relevant here: (1) whether Employers’ actions are
inconsistent with the right to arbitrate, and (2) whether the delay affected, misled, or
prejudiced Mendoza. (Ibid.) Mere participation in ligation is not prejudicial where there
has been no judicial litigation of the merits of arbitrable issues. (Id. at p. 1203.) But
here, Employers have already fully litigated the very issue that they now argue was
delegated to the arbitrator, namely whether the parties have entered into an agreement to
arbitrate. Even in their second motion to compel, having been placed on notice by the
trial court that the issue of contract formation was of concern, they made no mention of
the delegation clause in their moving papers, mentioning it only in connection with the
class action waiver. Their litigation of that question in the trial court and in this court is
inconsistent with the claim that the contract formation issue was for the arbitrator to
decide and prejudicial to Mendoza since he has already litigated that question in the trial
court and here.
In summary, we conclude that Employers forfeited any right to have the arbitrator
decide whether the parties have entered into a contract to arbitrate Mendoza’s underlying
claims by failing to properly preserve those claims in the trial court. They also waived
that right by fully litigating the question there and here.
25
4. Alternately, considering the delegation clause issue on the merits, it was for
the trial court to decide the contract formation question.
Even if we were to consider Employers’ delegation clause argument on the merits,
we would hold that it was for a court to decide the threshold question whether the parties
had entered into an agreement to arbitrate.
Since the trial court decided the issues related to the formation of an agreement to
arbitrate, and Employers did not request a statement of decision, we may presume the
trial court impliedly found the delegation clause did not limit its jurisdiction to decide the
issue. Accordingly, we must determine whether the trial court erred in making that
implied finding. (Aanderud, supra, 13 Cal.App.5th at p. 891; see also Acquire II, Ltd. v.
Colton Real Estate Group (2013) 213 Cal.App.4th 959, 970-971 [where parties fail to
request a statement of decision on motion to compel arbitration, appellate court will infer
all necessary findings for which substantial evidence exists in the record].)
“[P]arties may agree to have an arbitrator decide not only the merits of a particular
dispute but also ‘ “gateway” questions of “arbitrability,” such as whether the parties have
agreed to arbitrate or whether their agreement covers a particular controversy.’ ” (Henry
Schein, Inc. v. Archer & White Sales, Inc. (2019) 586 U.S. ___ [139 S.Ct. 524, 529].)
But “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless
there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” (First Options, supra,514 U.S. at p. 944.)
This is a “heightened standard” that “pertains to the parties’ manifestation of
intent, not the agreement’s validity.” (Najarro v. Superior Court (2021) 70 Cal.App.5th
871, 879-880 (Najarro), citing Rent-A-Center, supra, 561 U.S. at p. 69, fn. 1.) That is
because the question of who would decide gateway questions like the unconscionability
of an arbitration provision “is not one that the parties would likely focus upon in
contracting, and the default expectancy is that the court would decide the matter.”
(Ajamian, supra, 203 Cal.App.4th at p. 782, citing First Options, supra, 514 U.S. at pp.
26
943-945 [the issue of who should decide arbitrability “is rather arcane”].) “Although
parties are free to authorize arbitrators to resolve such questions, [courts] will not
conclude that they have done so based on ‘silence or ambiguity’ in their agreement,
because ‘doing so might too often force unwilling parties to arbitrate a matter they
reasonably would have thought a judge, not an arbitrator, would decide.’ ” (Lamps Plus,
supra, 587 U.S. at p. ___ [139 S.Ct. at p. 1417].) The “clear and unmistakable” test
applies under both the FAA and California law. (Ajamian, at pp. 781-782, fn. 5.)
Courts have held that“ ‘[t]here are two prerequisites for a delegation clause to be
effective. First, the language of the clause must be clear and unmistakable. [Citation.]
Second, the delegation must not be revocable under state contract defenses such as fraud,
duress, or unconscionability.’ ” (Aanderud, supra, 13 Cal.App.5th at p. 891.)
The first sentence of the delegation clause in the Arbitration Policy provides:
“The arbitrator, and not any federal, state, or local court or agency, shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability, enforceability,
or formation of the arbitration policy, including without limitation any claim that this
policy is void or voidable.” (Italics added.) Employers argue that the phrase “exclusive
authority to resolve any dispute” in the delegation clause is a “ ‘clear and unmistakable’
delegation of jurisdiction to the arbitrator.” Mendoza does not address this point.
The language of the delegation clause here is almost identical to that of the
delegation clause in Rent-A-Center, supra, 561 U.S. 63, 66. In Rent-A-Center, the parties
agreed that the clear and unmistakable test applied and that the delegation clause
provided clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.
(Id. at p. 69, fn. 1.) The district court had found the language of the delegation clause
clear and unmistakable, and the employee did not dispute that point before the Ninth
Circuit. (Id. at pp. 66, 69, fn. 1.) But in the Supreme Court, the employee argued that the
delegation was not clear and unmistakable because of the unconscionability claims he
raised. The court rejected that point and explained that the clear and unmistakable
27
requirement pertains to the parties’ manifestation of intent to arbitrate gateway issues, not
the agreement’s validity. (Ibid.) Since the employee did not challenge the parties’
manifestation of intent, the Supreme Court did not rule on the question whether the
language of the delegation clause—which is almost identical to the clause here—was
clear and unmistakable. (Id. at p. 69, fn. 1; Ajamian, supra, 203 Cal.App.4th at p. 784.)
We agree with Employers that California cases that have reviewed delegation
clauses that are similar to the clause here have held that the language at issue is clear and
unmistakable. (See e.g., Tiri, supra, 226 Cal.App.4th at pp. 237, 242 [“[t]his language
indicates an intent to delegate all issues to an arbitrator, including issues of
enforceability” and the plaintiff conceded as much]; Najarro, supra, 70 Cal.App.5th at
pp. 877, 878, 888.)
The second requirement for a delegation clause to be effective is that it cannot “be
revocable under state contract defenses such as fraud, duress, or unconscionability.’
[Citations.]” (Aanderud, supra, 13 Cal.App.5th at p. 891; Sonic II, supra, 57 Cal.4th at
pp. 1142-1143.) Without any citation to legal authority or discussion of the case law on
point, Employers baldly assert that “[t]here is no evidence in the record supporting, or
even suggesting a finding that the delegation provision was fraudulent, obtained under
duress, or is unconscionable. The delegation provision is valid and effective.” But
Mendoza responds that gateway questions regarding the formation of the arbitration
agreement or fraud in the execution of the arbitration agreement are not subject to
arbitration and are for a court to decide under Rosenthal v. Great Western Fin. Securities
Corp. (1996) 14 Cal.4th 394 (Rosenthal).
We agree with Mendoza that despite the existence of a broadly worded delegation
clause such as that before us, courts have held that certain gateway issues are for a court
to decide, including whether the parties entered into an agreement to arbitrate at all.
Thus, in Najarro, supra, 70 Cal.App.5th 871, the appellate court concluded that a court
must determine whether the parties formed an arbitration agreement despite existing
28
delegation clauses. The appellate court interpreted two separate versions of an arbitration
agreement between eight individuals and their employers, which it labelled “Version
One” and “Version Two.” The delegation clauses, similar to the clause before us,
provided that except “with respect to group, collective, or representative actions, the
arbitrator shall have the exclusive power to resolve any dispute relating to the
interpretation, applicability, enforceability, or formation of this [a]greement, including
but not limited to the assumption that any section of this [a]greement is unenforceable,
. . . .” (Id. at pp. 877, 878, italics added.) The court held that there was no clear and
unmistakable delegation to the arbitrator to decide enforceability in Version One of the
arbitration agreement since the severability clause in that agreement allowed a court to
determine issues such as enforceability and unconscionability. (Id. at p. 880.) Since the
severability clause in Version Two of the arbitration agreement did not contain
comparable language allowing a court to sever unenforceable or unconscionable
provisions, the appellate court concluded that Version Two of the arbitration agreement
clearly and unmistakably delegated issues of arbitrability to the arbitrator. (Id. at p. 888.)
Since the delegation was clear and unmistakable and the employees who signed Version
Two of the agreement had not specifically challenged the delegation clause, the court
stated that it “may only determine whether Version Two was entered into.” (Id. at
p. 889.)
The court held that the employees “who signed Version Two must have their
enforcement challenges determined by the arbitrator unless they can show that they never
entered into any agreement at all.” (Najarro, supra, 70 Cal.App.5th at p. 889.) Quoting
Rent-A-Center, the court explained that “[d]espite the existence of a clear and
unmistakable delegation clause, a court remains able to determine ‘whether any
agreement between the parties “was ever concluded.” ’ ” (Ibid., quoting Rent-A-Center,
at p. 70, fn. 2.) The court held that two of the employees had demonstrated that Version
Two of the arbitration agreement was unenforceable, despite the presence of a valid
29
delegation clause, due to fraud in the execution of their agreements. (Najarro, at pp. 889,
891.) The court explained that “claims of fraud in the execution are not arbitrable,
because when fraud in the execution is involved, ‘the parties have not agreed to arbitrate
any controversy.’ ” (Id. at p. 889, citing Rosenthal, supra, 14 Cal.4th at p. 416.) Thus,
even though the delegation clauses had express language delegating questions regarding
the “formation” of the arbitration agreement to the arbitrator, the question whether the
parties had agreed to arbitrate anything was for a court to decide.
Similarly, in Bruni v. Didion (2008) 160 Cal.App.4th 1272 (Bruni), which
considered the application of a delegation clause in an arbitration provision to a claim
involving contract formation and the existence of an agreement to arbitrate, the court held
that despite the delegation, a court must consider “a claim that the party resisting
arbitration never actually agreed to be bound.” (Id. at pp. 1279-1282, 1284.) “ ‘Where
. . . a party’s apparent assent to a written contract is negated . . . , there is simply no
arbitration agreement to be enforced.’ ” (Ibid., quoting Rosenthal, supra, 14 Cal.4th at
p. 416.) The court concluded that if the party resisting arbitration “is claiming that it
never agreed to the arbitration clause at all,” then “the court must consider that claim. On
the other hand, if it is not denying that it agreed to the arbitration clause, but instead it is
claiming some other defense to enforcement of the arbitration clause—e.g., illegality or
fraud in the inducement—then the court must enforce the ‘arbitrability’ portion of the
arbitration clause by compelling the parties to submit that defense to arbitration.” (Bruni,
at p. 1287.)
The Ninth Circuit Court of Appeals decision in Ahlstrom v. DHI Mortg. Co., L.P.
(9th Cir. 2021) 21 F.4th 631 (Ahlstrom) is in accord. The Ahlstrom court stated that it is
“well-established that some ‘gateway’ issues pertaining to an arbitration agreement, such
as issues of validity and arbitrability, can be delegated to an arbitrator by agreement.”
(Id. at p. 634.) Such gateway matters include whether the arbitration agreement is valid
(e.g., not unconscionable or illegal) or whether a concededly binding arbitration clause
30
applies to a certain type of controversy. (Ibid.; see e.g., Pinela, supra, 238 Cal.App.4th at
pp. 241, 249-251 [unconscionability]; Nielsen, supra, 22 Cal.App.5th at pp. 1115-1121
[illegality].)
The plaintiff in Ahlstrom filed a putative class action alleging employment-related
claims against his former employer. The employer moved to compel arbitration based on
an arbitration agreement the employee had signed when hired, which had a delegation
clause that provided that the arbitrator “ ‘shall have exclusive authority to resolve any
dispute relating to the formation, enforceability, applicability, or interpretation of’ ” the
arbitration agreement. (Ahlstrom, supra, 21 F.4th at pp. 633-634; italics added.) The
employee opposed the motion on the ground that an agreement to arbitrate had never
been properly formed. (Id. at p. 634.)
Despite the language of the delegation clause, the appellate court in Ahlstrom
rejected the employer’s contention that the parties to an arbitration agreement may
delegate issues of contract formation to an arbitrator. (Ahlstrom, supra, 21 F.4th at
p. 635.) The court stated, “ ‘Although challenges to the validity of a contract with an
arbitration clause are to be decided by the arbitrator, challenges to the very existence of
the contract are, in general, properly directed to the court.’ . . . As the Supreme Court
has recognized, a court should order arbitration only if it is convinced an agreement has
been formed.” (Ibid., citing Granite Rock Co. v. Int’l Bhd. Of Teamsters (2010) 561 U.S
287, 299-300, and First Options, supra, 514 U.S. at p. 943.) In addition, the court noted
that the Fifth and Tenth circuits had also rejected this argument. (Ahlstrom, at p. 635,
citing Edwards v. Doordash, Inc. (5th Cir. 2018) 888 F.3d 738, 744 [arguments that an
agreement to arbitrate was never formed are to be heard by the court even where a
delegation clause exists]; Fedor v. United Healthcare, Inc. (10th Cir. 2020) 976 F.3d
1100, 1104 [“Courts must . . . first determine whether an arbitration agreement was
indeed formed before enforcing a delegation clause therein”].)
31
These cases are consistent with the Supreme Court’s analysis in Rent-A-Center.
Given Mendoza’s assertion that the parties did not enter into an arbitration agreement at
all, Employers’ reliance on Rent-A-Center is unavailing. The court specifically excluded
the application of its decision to the threshold issue of whether an arbitration agreement
exists. “The issue of the agreement’s ‘validity’ is different from the issue of whether any
agreement between the parties ‘was ever concluded,’ and . . . we address only the
former.” (Rent-A-Center, supra 561 U.S. at p. 70, fn. 2.)
Based on these authorities, we conclude that although the delegation clause
provides that the arbitrator “shall have exclusive authority to resolve any dispute relating
to . . . formation of the arbitration policy,” as a matter of law, the question whether the
parties entered into an agreement to arbitrate anything at all is for a court to decide.
Since Mendoza challenged contract formation and the very existence of an agreement to
arbitrate, the trial court did not err when it addressed those issues. We turn now to the
question whether the trial court erred when it found that the parties had not entered into
an agreement to arbitrate.
E. Whether the Parties Entered into a Binding Agreement to Arbitrate
The strong public policy favoring contractual arbitration does not extend to parties
who have not agreed to arbitrate. (Esparza v. Sand & Sea, Inc. (2016) 2 Cal.App.5th
781, 787 (Esparza).) As the California Supreme Court explained in Pinnacle, in
“California, ‘[g]eneral principles of contract law determine whether the parties have
entered a binding agreement to arbitrate.’ (Craig v. Brown & Root, Inc. (2000) 84
Cal.App.4th 416, 420 . . . [(Craig)]; [citation].) Generally, an arbitration agreement must
be memorialized in writing. [Citation.] A party’s acceptance of an agreement to arbitrate
may be express, as where a party signs the agreement. A signed agreement is not
necessary, however, and a party’s acceptance may be implied in fact (e.g., Craig, at p.
420 [employee’s continued employment constitutes acceptance of an arbitration
32
agreement proposed by the employer]) or be effectuated by delegated consent ([citation].)
An arbitration clause within a contract may be binding on a party even if the party never
actually read the clause. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th
1199, 1215 . . . [(24 Hour Fitness)].)” (Pinnacle, supra, 55 Cal.4th at pp. 234-236.)
An essential element of any contract is the consent of the parties, or mutual assent,
which must be communicated by each party to the other. (Donovan v. RRL Corp. (2001)
26 Cal.4th 261, 270; Civ. Code, § 1565, subd. 3.) “ ‘Mutual assent is determined under
an objective standard applied to the outward manifestations or expressions of the parties,
i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions
or understandings.’ ” (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th
165, 173.)
The party seeking arbitration bears the burden of proving the existence of an
arbitration agreement by the preponderance of the evidence. (Pinnacle, supra, 55 Cal.4th
at p. 236.) In ruling on a petition to compel arbitration, “the court must determine
whether the parties entered into an enforceable agreement to arbitrate that reaches the
dispute in question, construing the agreement to the limited extent necessary to make this
determination. [Citation.] If such an agreement exists, the court must order the parties to
arbitration unless arbitration has been waived or grounds exist to revoke the agreement.”
(California Correctional Peace Officers Assn. v. State of California (2006) 142
Cal.App.4th 198, 204-205.)
1. The parties did not enter into an express agreement to arbitrate
Several California courts have considered whether the language of an arbitration
provision in an employee handbook, on its own or when combined with other documents,
creates a binding agreement to arbitrate employment-related claims. We shall summarize
six cases and then analyze the Handbook, checklists, and acknowledgment forms at issue
in this case.
33
a. Cases Addressing Whether Employee Handbook Contains an Agreement
to Arbitrate
The employer in Romo v. Y-3 Holdings (2001) 87 Cal.App.4th 1153 (Romo)
moved to compel arbitration based on an arbitration agreement in a 44-page employee
handbook. Section VIII of the handbook contained a three-page arbitration agreement
that included signature lines for both the employer and the employee, which neither party
had signed. Section IX of the handbook contained an acknowledgement form that the
employee did sign, in which she acknowledged receipt of the handbook, agreed to abide
by the policies and rules in the handbook, and acknowledged that the employer could
change its policies and rules at any time. (Id. at pp. 1156-1157.) The appellate court
concluded that there were two separate agreements in the handbook: (1) an arbitration
agreement that the parties had not signed and (2) an agreement to be bound by the
employer’s rules, policies, and procedures. (Id. at p. 1159.) The court concluded that the
arbitration agreement was intended to be a complete, stand-alone agreement that
contemplated signatures from both parties that were separate from the signature on the
acknowledgment form and held that since the parties had not assented to the arbitration
agreement, they had not agreed to arbitrate. (Id. at pp. 1159-1160.)
The employer in Mitri v. Arnel Management Co. (2007) 157 Cal.App.4th 1164(Mitri) moved to compel arbitration based on a two-page “Arbitration Agreement” in its
employee handbook and acknowledgement forms that the two employee plaintiffs had
signed. While the handbook generally stated a company policy that disputes arising out
of the employment would be settled by binding arbitration and “described some of the
parameters of such an arbitration,” the arbitration clause stated that “ ‘[a]s a condition of
employment, all employees are required to sign an arbitration agreement’ ” and that
employees would be provided with “a copy of their signed arbitration agreement.” (Id. at
pp. 1170-1171.) The court concluded that the latter provisions demonstrated an intent to
have employees sign a separate arbitration agreement. (Ibid.) Since there was no
34
evidence that either employee had signed such an agreement, the court held that there
was no agreement to arbitrate. (Id. at p. 1171.) The court also rejected the argument that
the employees had agreed to arbitration when they signed the acknowledgement forms,
which described the handbook as “an excellent resource for employees” “designed to
acquaint them with” company policies, but did not refer to “an agreement by the
employee to abide by the handbook’s” arbitration provision. (Id. at p. 1173.)
When the employer in Ajamian first hired the employee for an at-will position, it
gave her the company’s policies and procedures manual, which included an employee
handbook, which had an arbitration clause. Although the arbitration clause had a
signature line for the employee to sign, she did not sign it. The employer also gave her
an acknowledgement form that confirmed receipt of the handbook and stated that
employment claims were subject to arbitration. The employee did not sign the
acknowledgment form, either. However, she did sign a form acknowledging receipt of
the policies and procedures manual. (Ajamian, supra, 203 Cal.App.4th at pp. 775-776.)
Months later, the employer promoted the employee to a position for which she had an
employment contract that had an arbitration clause. Six weeks before she left the job, the
employer terminated the employment contract, and the employee was once again an at-
will employee. (Id. at pp. 776-779.) After the employee sued for employment-related
claims, the employer moved to compel arbitration based on the arbitration clauses in both
the handbook and the employment contract. (Id. at pp. 779-780.)
The court in Ajamian held that the arbitration agreement in the employment
contract was unconscionable. (Ajamian, supra, 203 Cal.App.4th at pp. 795-804.) The
court rejected the employer’s contention that the parties had entered into an agreement to
arbitrate based on the arbitration clause in the handbook and a clause in the employment
contract, which provided that upon termination of the employment contract, the
“employment would be ‘governed’ by [the employer’s] ‘policies then in effect.’ ” (Id. at
p. 805.) The court reasoned that the latter provision did “not specifically state she would
35
be bound by any arbitration agreement or even mention arbitration,” there was no
evidence that the employer provided the employee with the policies that were in effect
when it terminated her employment contract, and the employee never signed or agreed to
the arbitration agreement in the handbook. (Ibid.)
The employer in Sparks v. Vista Del Mar Child & Family Services (2012) 207
Cal.App.4th 1511 (Sparks), abrogated on another ground as stated in Harris, supra, 248
Cal.App.4th at pp. 385-390, sought to compel arbitration based on an arbitration
provision in two employee handbooks from 2006 and 2009 and an acknowledgement
form the employee signed in 2006. The 2006 handbook stated that it was a general
summary designed to acquaint employees with information about the employer and that it
did not create a contract of employment. (Id. at p. 1516.) Both handbooks had an
arbitration clause, but there were no signature lines for the arbitration clause in either
handbook. In 2006, the employee signed a form acknowledging receipt of the 2006
handbook, which stated that the handbook contained information about general company
policies and the employer may rescind, change, or add policies at its sole discretion. In
2009, the employee received a new handbook that contained an arbitration clause that
provided that employees would have “to sign for receipt of the handbook acknowledging
inclusion of the arbitration policy” and “will be required to sign a full arbitration
agreement” that would also be signed by the employer. The employee did not sign a
form acknowledging receipt of the handbook or a separate arbitration agreement in 2009.
(Id. at pp. 1516-1517.)
The Sparks court found that these documents did not create an agreement to
arbitrate since the arbitration clause in the handbook was not prominently distinguished
from the other clauses, was not specifically highlighted, and there was no place for the
employee to acknowledge it in writing. (Sparks, supra, 207 Cal.App.4th at p. 1519.) In
addition, the acknowledgment form “did not reference the arbitration clause much less
advise [the employee] that he would be bound by it.” (Id. at p. 1522.) Because the
36
language in the handbook suggested it “was informational rather than contractual” and
the employer failed to call attention to the arbitration clause in the acknowledgment form,
the court found there was no agreement to arbitrate. (Id. at p. 1520.)
The employer in Harris moved to compel arbitration based on four documents:
(1) an employee handbook, (2) an alternative dispute resolution agreement attached to the
handbook as Appendix A, (3) a separate “current employment alternative dispute
resolution policy” (which the court labelled the “arbitration agreement”), and (4) an
acknowledgement form. (Harris, supra, 248 Cal.App.4th at p. 377.) “Page 9 of the
handbook was entitled, ‘MANDATORY ALTERNATIVE DISPUTE RESOLUTION
BINDING ARBITRATION OF CLAIMS.’ ” It advised the employee that the employer
had adopted mandatory binding arbitration as a means of dispute resolution and stated:
“ ‘Confirmation of receipt and agreement to this policy is an absolute prerequisite to your
hiring by, and continued employment with, the Company.” ” (Id. at pp. 377-378.) Page
9 summarized the arbitration policy and ended with: “For a complete summary of the
Company’s policy on mandatory binding arbitration, please see Appendix A to this
Handbook, as well as the Agreement to Arbitrate, a copy of which you will be required to
execute prior to employment with the Company. [¶] If, for any reason, an applicant fails
to execute the Agreement to Arbitrate yet begins employment, that employee will be
deemed to have consented to the Agreement to Arbitrate by virtue of receipt of this
Handbook.” Appendix A contained a more comprehensive arbitration agreement. The
introduction to Appendix A stated that “the Company hereby offers and adopts the
following terms and conditions for Employee’s continued employment.” (Id. at p. 378.)
The arbitration agreement provided in part: “ ‘If Employee voluntarily continues his/her
employment, . . . Employee will be deemed to have knowingly and voluntarily consented
to and accepted all of the terms and conditions set forth herein without exception.” (Id. at
p. 379.) It provided that the employer could “modify and/or terminate this Policy . . . to
the extent necessary or desired so to comply with any future developments or changes in
37
the law.” (Ibid.) The employee signed an acknowledgement form expressly
acknowledging receipt of the “ ‘Alternative Dispute Resolution Agreement” and the
handbook. (Id. at p. 377.) The employee argued that the parties had not agreed to
arbitrate because he did not sign the separate arbitration agreement described by the
handbook, the arbitration provision on page 9 of the handbook, or Appendix A, and had
only acknowledged receipt of documents. (Id. at p. 380.)
Unlike the cases discussed above, the Harris court concluded that the parties had
agreed to arbitrate. (Harris, supra, 248 Cal.App.4th at pp. 376, 385, 390.) The court
reasoned that the employee had specifically acknowledged receipt of the arbitration
agreement. The court added that the handbook’s table of contents referred the reader to
page 9 with the subject heading of “ ‘BINDING ARBITRATION OF CLAIMS,’ ” that
the obligation to arbitrate was highlighted on page 9 in bold underscored letters, that page
9 expressly mentioned Appendix A, and stated “without equivocation that receipt and
agreement to the mandatory arbitration policy is ‘an absolute prerequisite’ to hiring and
continued employment” and that “ ‘[i]f, for any reason, an applicant fails to execute the
Agreement to Arbitrate yet begins employment, that employee will be deemed to have
consented to the Agreement to Arbitrate by virtue of receipt of this Handbook.’ ” (Id. at
p. 383.)
The employee handbook in Esparza, supra, 2 Cal.App.5th 781 started with a
“ ‘welcome letter,’ ” which stated that the handbook would give the employee “ ‘an
overview and better understanding’ ” of the employer’s “ ‘core policies,’ ” and that the
handbook was “ ‘not intended to be a contract (express or implied)’ ” or to “ ‘otherwise
create any legally enforceable obligations on the part of the company or its employees.’ ”
(Id. at p. 784.) In the welcome letter, the employer reserved “ ‘the right to revise,
modify, delete, or add to any and all policies, procedures, work rules, or benefits stated in
this handbook or in any other document at any time (except as to its at-will employment
policy) without prior notice . . . .’ ” (Ibid.) The handbook had a 2-page “Agreement to
38
Arbitrate,” which—unlike the rest of the handbook—was printed in all capital letters and
written in the first person. It stated, “I further agree and acknowledge that the company
and I will utilize binding arbitration to resolve all disputes that may arise out of the
employment context.” (Id. at p. 784.) The last two pages of the handbook contained an
acknowledgement form, which stated that the handbook was “designed to provide
information to employees . . . regarding various policies, practices and procedures that
apply to them including our Arbitration Agreement.” The acknowledgment form
provided that the employer reserved “the right to modify, alter or eliminate any and all of
the policies and procedures set forth herein at any time, for any reason, with or without
notice. Neither this manual nor its contents constitute, in whole or in part, either an
express or implied contract of employment . . . .” (Ibid., italics added in Esparza.) This
form asked the employee to acknowledge receipt of the handbook, said she was expected
to read it within the first week of employment, and advised her that failure to abide by its
provisions may result in disciplinary action. (Ibid.)
The Esparza court held there was no express agreement to arbitrate. The court
stated that the welcome letter undermined the employer’s argument that the handbook
created a binding agreement to arbitrate since it expressly stated that the handbook was
not intended to be a contract, either express or implied, or to create any legally
enforceable obligations, including the obligation to arbitrate. Given the breadth of the
language in the welcome letter, the court rejected the employer’s argument that it only
disclaimed the creation of an employment contract. (Esparza, supra, 2 Cal.App.5th at
p. 789.) The court concluded that the acknowledgement form did not create an
agreement to arbitrate because (1) although it mentioned the employer’s arbitration
policy, it did not say that the employee agreed to abide by the arbitration provision; (2) it
said the handbook was merely informational; and (3) it expressly recognized that the
employee had not yet read the handbook and there was no basis to assume the employee
agreed to be bound by something she had not read. (Id. at pp. 783, 790.)
39
b. Analysis
Employers urge us to follow Harris and argue that Mendoza expressly agreed to
arbitration when he signed the acknowledgement forms. Mendoza relies on Esparza,
Sparks, and Ajamian and argues that the acknowledgement forms and the Handbook did
not suffice to create a legally binding agreement to arbitrate.
We begin with the document checklists that Mendoza signed in 2012 and 2014, in
which he (1) acknowledged receipt of the Handbook and 14 other items and (2) stated
that “questions regarding these items [had] been explained to [him] to [his] satisfaction.”
Neither checklist mentions arbitration. The bare-bones acknowledgement of receipt of
the Handbook on the checklists, in our view, was insufficient to create a binding
agreement to arbitrate, and was redundant of language in the two acknowledgment of
receipt forms. We, therefore, shall not consider the checklists further.
Unlike Romo and Ajamian, where the arbitration provisions in the handbook had
signature lines, there are no signature lines on either the Arbitration Policy or anywhere
else in the Handbook. Like the arbitration provision in Sparks, there was no place for
Mendoza to acknowledge the arbitration provision in writing. (Sparks, supra, 207
Cal.App.4th at p. 1519.)
In finding no agreement to arbitrate, some courts relied on language in the
arbitration clause or the handbook that indicated that the employee was expected to sign
an arbitration agreement that was separate from the handbook. (Romo, supra, 87
Cal.App.4th at pp. 1159-1169; Mitri, supra, 157 Cal.App.4th at pp. 1170-1171; Sparks
supra, 207 Cal.App.4th at pp. 1516-1517.) There is no such language in the arbitration
clause here or the other documents that Employers rely on.
Some courts consider the location of the arbitration clause, its type size and style,
and whether it stood out from the rest of the handbook. (See e.g., Sparks, supra, 207
Cal.App.4th at pp. 1516-1517; Harris, supra, 248 Cal.App.4th at p. 383.) Employers
argue that the Arbitration Policy is not buried in the Handbook and is the first substantive
40
provision in the Handbook. In fact, it follows the welcome letter and the section on the
at-will employment policy. The 30-page Handbook is divided into 15 sections that are
labelled with topic headings. FTU used the same size and style of font throughout the
Handbook. To add emphasis to both the text and the headings, FTU used bold face
letters, underscoring, all capital letters, or a combination of those techniques. Unlike the
handbook in Harris, there was no table of contents in the Handbook that drew the
reader’s attention to the Arbitration Policy.
Page 1 of the Handbook contains the welcome letter. Page 2 of the Handbook
begins with the statement: “THE POLICIES BELOW ARE A CONDITON OF
EMPLOYMENT WITH THE COMPANY” in all capital letters, bold, and unscored.
The first five sections of the Handbook are set off by headings that are in the same font
style and size as the text, except that the headings are bold and centered. FTU used this
style of heading for the “At-Will Employment Policy,” the “Binding Arbitration
Policy” (emphasis original) and three other sections. Starting on page 7, the Handbook
used other heading styles with some headings in bold, all capital letters that are
underscored (i.e., “SAFETY POLICY”) and others in bold, all capital letters (i.e.,
“NON-DISCRIMINATION EMPLOYER,” “COMPANY RULES AND
REGULATIONS,” and “BENEFITS PROVIDED BY THE COMPANY”). This
suggests FTU thought the latter policies were more important than the ones that preceded
them, including the Arbitration Policy. The Arbitration Policy was not prominently
distinguished from the other clauses in the Handbook, was not specifically highlighted,
did not stand out from other sections in the Handbook visually or in its use of language,
and there was no place in the Handbook for the employee to sign or acknowledge the
Arbitration Policy in writing.
Courts that found no agreement to arbitrate relied on language in the handbook or
acknowledgement forms that indicated that the handbook was intended to be
informational, not contractual; could be changed by the employer at any time; or did not
41
create a contract of employment. (See e.g., Esparza, supra, 2 Cal.App.5th at pp. 784-
785 [handbook and acknowledgement form said handbook was informational and could
be changed by employer; handbook said it was not intended to create any kind of contract
or enforceable legal obligation]; Sparks, supra, 207 Cal.App.4th at pp. 1516, 1520
[handbook said it was informational and did not create a contract of employment;
acknowledgment form said handbook was informational and employer could change it at
any time]; see also Mitri, supra, 157 Cal.App.4th at p. 1173; Romo, supra, 87
Cal.App.4th at pp. 1156-1157.)
All three of these factors are present in this case. First, the welcome letter stated
that the Handbook was “designed for quick reference and general information” and
provided “an overview” of FTU’s procedures, practices, and policies. This concept was
repeated in the Second Acknowledgment, which stated that the Handbook was “designed
for quick reference and that it sets forth many but not all of” Employers’ “policies and
guidelines” and that “the policies and procedures described in this handbook are for
purposes of information only.”
Second, the welcome letter stated that the policies summarized in the Handbook,
except the at-will employment policy, “are subject to changes and/or deletions from time
to time” and that “all terms and conditions of your employment may be changed or
withdrawn at [the] company’s unrestricted option at any time, with or without good
cause.” The Handbook repeated this notion on page 2 under the heading “At-Will
Employment Policy.” The Second Acknowledgement repeated this point as well, stating
that except for the at-will policy, the policies it the Handbook may be amended or
modified by the employer at any time.
Third, the welcome letter stated that it was “not intended as a contract of
employment.” The Second Acknowledgement repeated this point, requiring Mendoza to
acknowledge that the Handbook and the policies contained therein “are not in any way
intended as a contract of employment.” This language taken together indicates that the
42
Handbook and acknowledgement forms were intended to be informational, not
contractual. Moreover, FTU referred to the arbitration clause that it now seeks to enforce
as a “policy,” rather than a “contract” or “agreement” to arbitrate. These factors all
weigh against finding an agreement to arbitrate.
Another factor courts consider in determining whether the parties have agreed to
arbitrate is whether the acknowledgment form mentions arbitration. The Mitri court
rejected the employer’s argument that the employee’s signature on an acknowledgement
form created an agreement to arbitrate, noting that “[c]onspicuously absent” from the
acknowledgment form was any reference to an “agreement to abide by the handbook’s
arbitration provision.” (Mitri, supra, 157 Cal.App.4th at p. 1173.) In Ajamian, a contract
provision that the employee would be bound by the employer’s policies “then in effect”
did not create an agreement to arbitrate because it did not “specifically state she would be
bound by any arbitration agreement or even mention arbitration at all.” (Ajamian, supra,
203 Cal.App.4th at p. 805.) Although the acknowledgment form in Esparza mentioned
arbitration as an employer policy, it did not create an agreement to arbitrate because it did
not say the employee agreed to abide by the arbitration provision and expressly
recognized that she had not yet read the handbook. (Esparza, supra, 2 Cal.App.5th at
pp. 783, 790.) Conversely, in the acknowledgement form in Harris—where the court
found an agreement to arbitrate—the employee expressly acknowledged receipt of the
employer’s “Alternative Dispute Resolution Agreement.” (Harris, supra, 248
Cal.App.4th at p. 377; see also 24 Hour Fitness, supra, 66 Cal.App.4th at p. 1215
[mutual assent where acknowledgement form referred to arbitration provision in
handbook].)
The First Acknowledgment that Mendoza signed mentions numerous topics in
12 paragraphs on two pages (i.e., his “pay plan,” the at-will nature of his employment,
meal and rest breaks, and other matters). It contains the following general reference to
the Handbook: “You will be required to abide by all applicable rules and policies,
43
including but not necessarily limited to those set forth in the [Handbook].” Above the
signature line, it stated, “I have read the [First] Acknowledgment and agree to its terms.”
Conspicuously absent was any mention of arbitration, alternative dispute resolution, or
the Arbitration Policy.
The Second Acknowledgment consisted of 3 paragraphs and a signature line on a
single page, in which Mendoza acknowledged receipt of the Handbook. The form stated:
“In consideration of my employment with the Company, I hereby agree to read, observe,
and abide by the conditions of employment, policies and rules contained in this
Handbook.” It contained the “quick reference” and “information only” language
discussed above and stated that the Handbook and the policies contained therein “are not
in any way intended as a contract of employment,” that the Handbook represented “the
entire understanding between” Mendoza and FTU and could only be altered by a “written
agreement, signed by an officer of the Company.” As before, conspicuously absent was
any mention of arbitration, alternative dispute resolution, or the Arbitration Policy.
Nothing in the acknowledgment forms notified Mendoza either that the Handbook
contained an arbitration clause or that his acceptance of the Handbook constituted a
waiver of his right to a judicial forum in which to resolve his wage and hour claims.
(Sparks, supra, 207 Cal.App.4th at p. 1520, quoting Nelson v. Cyprus Bagdad Copper
Corp. (9th Cir. 1997) 119 F.3d 756, 761.) Since the Handbook “was informational rather
than contractual” and FTU failed to call attention to the arbitration requirement in the
acknowledgment form, Mendoza should not be required to arbitrate. (Sparks, at p. 1520.)
Merely agreeing to abide by all applicable rules and policies and to “read, observe and
abide by” the contents of the Handbook that “is designed for quick reference and general
information” does not constitute a contract and does not bind the employee to arbitration.
(Id. at p. 1521.) “To support a conclusion that an employee has relinquished his or her
right to assert an employment-related claim in court, there must be more than a
boilerplate arbitration clause buried in a lengthy employee handbook . . . . At a
44
minimum, there should be a specific reference to the duty to arbitrate . . . in the
acknowledgment of receipt form signed by the employee.” (Id. at p. 1522.) We agree
with Sparks that the “increasing phenomenon of depriving employees of the right to a
judicial forum should not be enlarged by imposing upon employees an obligation to
arbitrate based on one obscure clause in a large employee handbook distributed to new
employees for informational purposes.” (Ibid.)
Employers rely on the first paragraph in the Second Acknowledgement, which
stated: “In consideration of my employment with the company, I hereby agree to read,
observe, and abide by the conditions of employment, policies and rules contained in this
Handbook.” The phrase “I hereby agree to read” the Handbook, like the promise to read
the handbook in the acknowledgement form in Esparza, assumes that Mendoza had not
yet read the Handbook when he signed the acknowledgment forms. And it was
undisputed that Mendoza had not read the Handbook before signing any of the forms.
There is “no basis to assume the employee agreed to be bound by something [he] had not
read.” (Esparza, supra, 2 Cal.App.5th at pp. 783, 790.)
Employers rely on the following sentence at the top of page 2 of the Handbook:
“THE POLICIES BELOW ARE A CONDITION OF EMPLOYMENT WITH THE
COMPANY” and on the last paragraph of the Arbitration Policy, which provides:
“EMPLOYEE UNDERSTANDS BY BEING EMPLOYED BY THE COMPANY, AS A
CONDITION OF EMPLOYMENT, THE EMPOLYEE [sic] AGREES TO THIS
BINDING ARBITRATION POLICY, WHICH MEANS THE EMPLOYEE AND THE
COMPANY BOTH GIVE UP RIGHTS TO TRIAL BY JURY . . . .” (Emphasis
original.) Employers argue that since the Arbitration Policy was a condition of
Mendoza’s employment and Mendoza agreed “to read, observe, and abide by the
conditions of employment, policies and rules contained in this Handbook” in the Second
Acknowledgment, he entered into an express agreement to submit any claims against
45
FTU to arbitration. Mendoza argues that a condition of employment that can be changed
by the employer unilaterally at any time does not create a binding contractual obligation.
Employers do not cite any cases that support the assertion that by referring to
arbitration as a “condition of employment,” the parties entered into a binding agreement
to arbitrate. And they do not brief the effect of designating one or more of FTU’s
policies a “condition of employment.” Notably, the Handbook stated twice that “all
terms and conditions of your employment may be changed or withdrawn at company’s
unrestricted option at any time, with or without good cause.” The Second
Acknowledgement did not distinguish between “conditions of employment” and other
policies and rules, lumping them all together in a single sentence, which stated: “In
consideration of my employment, I hereby agree to read, observe, and abide by the
conditions of employment, policies and rules contained in this Handbook.”
Employers also rely on Harris. The arbitration agreement in Harris contained
language that described arbitration as a condition of employment. (Harris, supra, 248
Cal.App.4th at p. 378.) But the court did not rely on that language in finding an
agreement to arbitrate. Distinguishing Sparks, the Harris court reasoned that the
employee had agreed to arbitrate because (1) he had acknowledged receiving both the
handbook and the arbitration agreement in the acknowledgement form, (2) the obligation
to arbitrate was highlighted in the handbook’s table of contents and in the text of the
handbook; (3) the handbook’s arbitration clause stated “without equivocation that receipt
and agreement to the mandatory arbitration policy [was] ‘an absolute prerequisite’ to
hiring and continued employment”; and (4) the arbitration clause provided “ ‘If, for any
reason, an applicant fails to execute the Agreement to Arbitrate yet begins employment,
that employee will be deemed to have consented to the Agreement to Arbitrate by virtue
of receipt of this Handbook.’ ” (Id. at p. 383.) Unlike the situation here, the employer in
Harris expected its employees to sign an arbitration agreement and its arbitration clause
expressly addressed the situation where an employee fails to sign the arbitration
46
agreement. Based on this, the court concluded that Harris was “a stronger case for
finding an agreement to arbitrate” than other cases where an acknowledgement form
incorporated an arbitration agreement by reference. (Id. at p. 385.)
This case is distinguishable from Harris in many respects. Notably, FTU did not
ask Mendoza to sign an arbitration agreement. Unlike Harris, (1) the acknowledgement
forms here did not mention the Arbitration Policy or otherwise incorporate it by
reference; (2) the Arbitration Policy was not highlighted in a table of contents and did not
stand out from the other sections of the Handbook; (3) the “condition of employment
language” at the end of the Arbitration Policy is not nearly as explicit or unequivocal as
the language in the arbitration clause in Harris; and (4) nothing advised Mendoza that he
would be deemed to have consented to arbitration by accepting the employment if he
failed to sign an arbitration agreement. The documents in this case use the phrase
“conditions of employment” almost interchangeably with other words like “applicable
rules,” “policies,” “procedures,” “terms,” and “guidelines.”
For these reasons, we conclude that the trial court correctly found that the parties
had not entered into an express agreement to arbitrate.
2. Whether an Agreement to Arbitrate May be Implied
Employers argue that the parties entered into an implied-in-fact agreement to
arbitrate. Employers contend that Mendoza assented to arbitration because he received a
copy of the Handbook, which contains the Arbitration Policy, and worked for FTU after
he received it. Mitri, Ajamian, and Esparza all rejected this argument. (Mitri, supra, 157
Cal.App.4th at pp. 1171-1172; Ajamian, supra, 203 Cal.App.4th at p. 806; Esparza,
supra, 2 Cal.App.5th at pp. 790-791.)
Employers cite Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 11 (Asmus) and
DiGiacinto v. Ameriko-Omserv Corp. (1997) 59 Cal.App.4th 629, 637 (DiGiacinto) for
the proposition that “an agreement to arbitrate may be . . . implied-in-fact where the
47
employee’s employment constitutes his/her acceptance of an agreement proposed by [the]
employer.” As the Mitri explained, “neither Asmus nor DiGiacinto . . . addressed
whether an arbitration agreement existed between an employer and employee. [¶]
Asmus, . . . , arose in the context of an employer’s discontinuance of a management
employment security policy but did not involve an arbitration agreement.” (Mitri, supra,
157 Cal.App.4th at p. 1171.) The issue in Asmus was whether “ ‘[o]nce an employer’s
unilaterally adopted policy—which requires employees to be retained so long as a
specified condition does not occur—has become a part of the employment contract, may
the employer thereafter unilaterally [terminate] the policy, even though the specified
condition has not occurred?’ ” ’ (Asmus, at pp. 5-6, fn. omitted.) “In holding an
employer could do so, the Supreme Court recognized that ‘California law permits
employers to implement policies that may become unilateral implied-in-fact contracts
when employees accept them by continuing their employment.’ [Citation.] In Asmus,
both parties agreed that the employees had accepted a unilateral contract by their
performance. [Citation.] Thus, the question in Asmus was whether the unilateral
contract, once formed, could be unilaterally modified or terminated by the employer.”
(Mitri, supra, 157 Cal.App.4th at p. 1171.) Mitri distinguished cases such as this one,
where the issue is whether the documents prepared by the employer show that the parties
entered into an express bilateral contract to arbitrate, and rejected the employer’s
argument that the handbook proposed a unilateral agreement to arbitrate, stating that
arbitration agreements that compel both parties to arbitrate are expressly mutual. (Id. at
pp. 1171-1172.)
The issue in DiGiacinto was whether the employer was liable for breach of
contract when it notified an at-will employee of a prospective change in the rate of
compensation and the employee continued to work after such notice. “In concluding that
an employer is not so liable, the appellate court noted, ‘the majority line of cases supports
the proposition that as a matter of law, an at-will employee who continues in the employ
48
of the employer after the employer has given notice of changed terms or conditions of
employment has accepted the changed terms and conditions.’ ” (Mitri, supra, 157
Cal.App.4th at p. 1172, citing DiGiacinto, supra, 59 Cal.App.4th at pp. 631, 637.)
DiGiacinto did not involve arbitration. And, unlike DiGiacinto, this case does not
involve notice of a change in the terms of the employment.
Employers rely on Craig, supra, 84 Cal.App.4th 416. After the employee in Craig
had worked for the employer for 12 years, the employer established a four-step dispute
resolution program that culminated in arbitration. (Id. at pp. 418-419.) The employer
moved to compel arbitration and presented evidence that it had sent a memorandum to all
employees, including the plaintiff, in both 1993 and 1994, advising them of the new
dispute resolution program. The memorandum explained the purpose of the program and
emphasized that everyone would be bound by it, stating: “The enclosed brochure
explains the procedures as well as how the Dispute Resolution Program works as a
whole. Please take the time to read the material. IT APPLIES TO YOU. It will govern
all future legal disputes between you and the Company that are related in any way to your
employment.” (Id. at pp. 419, 421.) The “enclosed brochure” explained the program’s
four-step progression—from access to management, to an informal conference, to
mediation, to arbitration. It explained what arbitration is, the role of the arbitrator, the
procedure for obtaining arbitration, and the cost. (Id. at p. 419.) The appellate court
rejected the employee’s contention that the evidence was insufficient to show she entered
a binding arbitration agreement with her employer. The court found substantial evidence
that the employee received the memorandum and the brochure in 1993 and again in 1994,
that she continued to work for the employer until 1997, and that “she thereby agreed to be
bound by the terms of the Dispute Resolution Program, including its provision for
binding arbitration.” (Id. at p. 422.)
This case is distinguishable from Craig. The documents that created the implied
agreement to arbitrate in Craig consisted of (1) two memoranda that notified the
49
employee of the new alternative dispute resolution program, and (2) a brochure that
describe the program and the procedures for resolving disputes, including arbitration, in
greater detail. The memoranda in Craig, which are analogous to the acknowledgement
forms in this case, expressly mentioned the dispute resolution program and advised the
employee that the program applied to her and “will govern all future legal disputes . . .
related in any way to [her] employment.” (Craig, supra, 84 Cal.App.4th at p. 419.)
Unlike the memoranda in Craig that provided clear notice of the alternative dispute
program, the acknowledgment forms here did not mention the Arbitration Policy.
Ajamian rejected the argument that the employee’s continued employment after
the receipt of the employer’s handbook constituted acceptance of and consideration for an
agreement to arbitrate. (Ajamian, supra, 203 Cal.App.4th at p. 806.) The court reasoned
that unlike the employee in Craig, who “was twice sent brochures describing the
company’s dispute resolution program, with all-caps notices which emphasized that the
employee was bound by the program,” Ajamian was never sent such a notice and the
employment agreement “referred generically to ‘policies,’ not to arbitration.” (Ajamian,
at p. 806.)
The only case to apply the implied-in-fact contract theory to an arbitration
agreement in an employee handbook was Harris, supra, 248 Cal.App.4th at pages 383-
384. But the court did so after it had already concluded that the parties had entered into
an express agreement to arbitrate. The court relied on language in the handbook that
expressly addressed the effect of the employee’s failure to execute the written arbitration
agreement in the handbook and provided that upon commencing the employment, the
employee was deemed to have consented to arbitration. (Id. at pp. 383-384.) There is no
such provision in the documents at issue here.
The Esparza court rejected the employer’s contention that the employee had
impliedly agreed to the arbitration provision in the employee handbook because she was
expected to read the handbook within a week and continued to work for the employer
50
after that week. (Esparza, supra, 2 Cal.App.5th at p. 790.) The court distinguished
Esparza from Harris, reasoning—as we have—that there was no contractual language in
the handbook in Esparza that provided that if the employee voluntarily continues to
work, she “ ‘will be deemed to have knowingly and voluntarily consented to and
accepted’ ” the terms and conditions in the handbook’s arbitration agreement. (Ibid.) In
rejecting this point and distinguishing Harris, the court relied on language in the
welcome letter, which that declared that the handbook “did not ‘create any legally
enforceable obligations’ ” and in the acknowledgment form, which stated that the
handbook provided “general information” about the employer’s policies. (Ibid.) The
court reasoned that there was no requirement that the employee agree to any of the
employer’s policies. (Id. at pp. 790-791.) The Second Acknowledgement and the
Handbook here likewise declared that they did not create any binding obligations, were
designed for quick reference, and provided general information.
Since this case is distinguishable from Craig and Harris, and considering the other
authorities discussed above, we reject Employers’ contention that Mendoza entered into
an implied-in-fact agreement to arbitrate by simply receiving a copy of the Handbook and
working for FTU.9
9
In light of our conclusion, we shall not reach Mendoza’s contention that “fraud
in the execution results in a lack of mutual consent and precludes formation of a valid
arbitration agreement.” In addition, we shall not consider Employers’ contention that the
Arbitration Policy is not unconscionable, either procedurally or substantively. Since
Mendoza did not rely on an unconscionability defense, either in the trial court or in his
brief on appeal, and the trial court did not reach the unconscionability issue, we decline to
address whether the Arbitration Policy is unconscionable as a matter of law. We note,
however, that after this case was fully briefed, the California Supreme Court construed an
arbitration agreement that contained language very similar to the Arbitration Policy in
this case and found it unconscionable under the circumstances in that case. (OTO, supra,
8 Cal.5th at pp. 118-119, 126-137.)
51
Since the parties did not enter into either an express or an implied contract to
arbitrate, the trial court did not err when it denied Employers’ motion to compel
arbitration.
IV. DISPOSITION
The trial court’s order denying the motion to compel arbitration is affirmed.
52
_______________________________
Greenwood, P. J.
WE CONCUR:
______________________________________
Elia, J.
______________________________________
Grover, J.
Mendoza v. Trans Valley Transportation et al.
No. H044372
53
Filed 3/1/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
JOSE MARIO MENDOZA, H044372
(Santa Clara County
Plaintiff and Respondent, Super. Ct. No. 1-15 CV281073)
v.
TRANS VALLEY TRANSPORT et al.,
Defendants and Appellants.
THE COURT:
The written opinion in the above-entitled matter filed on February 4, 2022, was
not certified for publication in the Official Reports. Upon application of respondent Jose
Mario Mendoza and the California Labor Commissioner and good cause appearing, it is
ordered that the opinion shall be certified for publication pursuant to rule 8.1105(b) of the
California Rules of Court. It is therefore ordered that the opinion be published in the
Official Reports.
In compliance with California Rules of Court, rule 8.1120, the Clerk shall transmit
the request for publication and a copy of this order to the Supreme Court.
________________________________
Greenwood, P. J.
_____________________________
Elia, J.
_____________________________
Grover, J.
1
Trial Court: Santa Clara County Superior Court
Superior Court No.: 15CV281073
Trial Judge: The Honorable Peter H. Kirwan
Attorneys for Plaintiff and Respondent, Karasik Law Firm
Jose Mario Mendoza: Gregory N. Karasik
Law Offices of Santos Gomez
Santos Vasquez Gomez
Attorneys for Defendants and Appellants, Brothers Smith LLP
Trans Valley Transport et al.: Horace Green
Robert Joseph Brothers
Tonya Draeger Hubinger
Attorneys for Cross-Defendants, Ellrod, Ramirez, Trester LLP
PeopLease, LLC: Tracie Lynn Childs
Manning & Kass, Ellrod et al LLP
Alfred Michael DeLaCruz
Attorney for the California Labor Jessica Fry
Commissioner:
H044372
Mendoza v. Trans Valley Transport et al.
2