Subcontracting Concepts (CT), LLC v. De Melo

Filed 4/10/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
SUBCONTRACTING CONCEPTS (CT),
LLC, et al.,
Plaintiffs and Appellants,
v.
CHAFIE GABRIEL PEREIRA MOREIRA
DE MELO, A152205
Defendant and Respondent;
DEPARTMENT OF INDUSTRIAL (San Francisco City and County
RELATIONS, DIVISION OF LABOR Super. Ct. No. CPF17515526)
STANDARDS ENFORCEMENT,
Intervener and Respondent.
Subcontracting Concepts CT, LLC (SCI); Jesus Fernando Gonzalez; and Pedro
Luesch (collectively appellants) appeal from the trial court’s order denying their petition
to compel arbitration and stay proceedings, brought against Chafie Gabriel Pereira
Moreira De Melo (respondent) in this matter arising from respondent’s administrative
wage claim, filed with the California Labor Commissioner, against appellants. On
appeal, appellants challenge the trial court’s findings that the arbitration agreement
between SCI and respondent was (1) procedurally and substantively unconscionable, and
(2) so permeated with unconscionability that severance of the unconscionable terms was
not possible. We shall affirm the court’s order.
FACTUAL AND PROCEDURAL BACKGROUND
Respondent was hired by Express Messenger Systems, Inc., doing business as
OnTrac (OnTrac) and SCI in June 2014, at which time he signed SCI’s “Owner/Operator
1
Agreement” (Agreement).1 The Agreement is five pages long, typed in small font, and
made up of 27 numbered clauses, including the arbitration clause at issue here, which is
the 26th clause.
The arbitration clause provides that if the parties are unable to negotiate and settle
a dispute, disputes “within the jurisdictional maximum for small claims will be settled in
the small claims court where the Owner / Operator resides. [¶] All other disputes, claims,
questions, or differences beyond the jurisdictional maximum for small claims courts
within the locality of the Owner / Operator’s residence shall be finally settled by
arbitration in accordance with the Federal Arbitration Act [(FAA)].
“Neither you nor SCI shall be entitled to join or consolidate claims in arbitration
by or against other individuals or entities, or arbitrate any claim as a representative
member of a class or in a private attorney general capacity.
“The arbitration panel shall be made up of three (3) people. Each party shall
choose one arbitrator that will serve on the panel in a non-neutral capacity. The two
chosen arbitrators will select a third arbitrator who will be neutral. If the chosen
arbitrators are unable to select a third arbitrator within ten (10) days of their selection, a
third arbitrator shall be appointed by the American Arbitration Association. Each
arbitrator shall have experience in the transportation industry and have a legal
background.
“Consistent with the expedited nature of arbitration, each party will upon written
request of the other party promptly provide copies of any relevant documents necessary
to support any claim or defense. All parties shall have the discretion to examine up to
three (3) witnesses per party. Each deposition shall be limited to a maximum of two (2)
hours. Any objections based on privilege and/or confidential information will be
reserved for arbitration. The arbitration and any discovery prior to the arbitration will
1
Respondent signed the same Agreement on two subsequent dates, in April and
July 2016.
2
take place in a location convenient to both parties. The parties may submit briefs in lieu
of any formal gathering for arbitration.
“The arbitrators will have authority to award actual monetary damages only. No
punitive or equitable relief is authorized. All parties shall bear their own costs for
arbitration and no attorney’s fees or other costs shall be granted to either party.
“The arbitrator’s decision shall be final and legally binding and judgment may be
entered thereon.”2
The evidence of the circumstances surrounding respondent’s hiring and signing of
the Agreement is as follows. Respondent answered an ad and went to an OnTrac/SCI
warehouse, where he was told he had to sign employment documents “on the spot” to get
a job and be matched with a supervisor. Respondent needed a job and felt he had to sign
the documents. Respondent’s native language is Portuguese, and he is not fluent enough
in English to fully understand documents written in English. No one asked if he wanted
the documents translated into Portuguese and no one explained the documents to him in
detail in either English or Portuguese.
Respondent was not given time to carefully review the employment documents at
the warehouse and no one told him he could have an attorney review the documents or
that he could negotiate their terms before he signed them. Nor did anyone tell him about
any rights he might be giving up by signing the documents. He did not know and was not
told that New York law applied to the documents or that he would be forced to go to
arbitration in case of an employment-related dispute. He “did not know or understand the
meaning or purpose of arbitration, the rules and procedures related to arbitration, that [he]
would have to pay the cost of arbitration, or that [he] was giving up payments of
attorneys’ fee[s] and penalties by going to arbitration.” When he signed the employment
documents, he was not given rules for the American Arbitration Association or any other
arbitration association.
2
The 23rd clause of the Agreement states that the Agreement “shall be governed
by the laws of the State of New York.”
3
On January 26, 2017, respondent filed an administrative wage claim with the
Labor Commissioner against OnTrac, SCI, Gonzales, Luesch, and Marilucy Soare,
alleging that he was employed by these entities and individuals and seeking unpaid
overtime, meal, and rest period wages, reimbursement of unlawful wage deductions and
business expenses, as well as statutory penalties for failing to provide accurate itemized
wages statements, unpaid sick leave, and statutory waiting time penalties. (See Lab.
Code, §§ 203, 226, 2802.)3
On March 14, 2017, SCI, Gonzales, and Luesch filed a petition to compel
arbitration and stay proceedings.4 On May 9, the court granted the Labor
Commissioner’s application for leave to intervene and appear in the matter.
On May 31, 2017, following a hearing, the court issued an order denying the
petition to compel arbitration and stay the proceedings after finding that the arbitration
clause was both procedurally and substantively unconscionable and that severance of the
substantively unconscionable provisions was not possible because the arbitration clause
was permeated with unconscionability. Also on May 31, 2017, respondent’s counsel
served notice of entry of order on appellants’ counsel and the Labor Commissioner.
On July 28, 2017, appellants filed a notice of appeal.
On October 31, 2018, we granted the Labor Commissioner’s unopposed request
for judicial notice of materials from the Labor Commissioner’s website from 2014 and
2018, that provide detailed instructions on how to file a wage claim and regulations
governing hearings held by the Labor Commission pursuant to section 98. (See Cal.
Code Regs., tit. 8, §§ 13500–13520.)
3
All further statutory references are to the Labor Code unless otherwise indicated.
Filing this claim was respondent’s first step in obtaining what is known as “a
Berman hearing, a dispute resolution forum established by the Legislature to assist
employees in recovering wages owed.” (Sonic-Calabasas A., Inc. v. Moreno (2013) 57
Cal.4th 1109, 1126 (Sonic II); see §§ 98–98.8.)
4
OnTrac and Marilucy Soares, defendants in the Labor Commission claim, did not
join in the filing of the petition to compel arbitration.
4
DISCUSSION
Appellants challenge the trial court’s findings that the arbitration clause in the
Agreement between SCI and respondent is (1) procedurally and substantively
unconscionable, and (2) so permeated with unconscionability that severance of the
unconscionable terms was not possible.
I. Unonscionability
“The doctrine of unconscionability ‘ “ ‘refers to “ ‘an absence of meaningful
choice on the part of one of the parties together with contract terms which are
unreasonably favorable to the other party.’ ” ’ ” ’ [Citations.] There is both a procedural
and substantive aspect of unconscionability; the former focuses on ‘oppression’ or
‘surprise’ due to unequal bargaining power, the latter on ‘overly harsh’ or ‘one-sided’
results. [Citation.]
‘ “Both procedural and substantive unconscionability must be present for the court
to refuse to enforce a contract under the doctrine of unconscionability although ‘ “they
need not be present in the same degree.” ’ [Citation.] Essentially the court applies a
sliding scale to the determination: ‘ “[T]he more substantively oppressive the contract
term, the less evidence of procedural unconscionability is required to come to the
conclusion that the term is unenforceable, and vice versa.” ’ ” ’ [Citation.] Absent
conflicting evidence, the trial court’s unconscionability determination is a question of law
subject to de novo review. [Citations.]” (Ramos v. Superior Court (2018) 28
Cal.App.5th 1042, 1063 (Ramos); see also Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 113–114 (Armendariz).)5
5
Respondent asserts that the proper standard for reviewing a court’s
unconscionability determination is abuse of discretion. In this case, however, where the
material facts are not in dispute, we conduct independent review. (See Ramos, supra, 28
Cal.App.5th at p. 1063.) As we shall discuss, in part I.A., post, of this opinion, the sole
underlying factual dispute between the parties—whether respondent was an employee of
SCI or an independent contractor—is not material to the question of unconscionability.
5
A. Applicability of California Law Applying the Unconscionability Doctrine to
Arbitration Agreements in the Employment Context
Although the Agreement states that respondent is an independent contractor, his
administrative wage claim is based on the contention that he was misclassified as an
independent contractor, and was instead an employee, entitled to certain protections
under the Labor Code. Appellants devote much of their briefing to the argument that
California law regarding unconscionability in the employee/employer context is
inapplicable here because respondent was an independent contractor. According to
appellants, as an independent contractor, respondent falls somewhere between an
employee and a consumer for purposes of determining unconscionability, and is not
entitled to the level of protections given to employees under California law. (Compare
Armendariz, supra, 24 Cal.4th 83 [addressing unconscionability in employment context]
with Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899 [addressing
unconscionability in consumer context].)6 We disagree.
In Ramos, supra, 28 Cal.App.5th at page 1046, the trial court granted a law firm’s
motion to compel arbitration after Ramos, an “ ‘Income Partner’ ” at the firm, brought a
Fair Employment and Housing (FEHA) claim. On appeal, the parties disputed whether
Armendariz applied to the arbitration clause in the parties’ partnership agreement, with
the law firm contending it did not because Ramos was not an employee. (Ramos, at
pp. 1055–1056.)
Division One of this District found “it unnecessary to resolve the question of
whether Ramos was an employee” for purposes of “deciding whether the parties’
arbitration agreement [was] enforceable,” concluding that Armendariz should guide its
arbitrability determination because, inter alia, the law firm “was in a superior bargaining
6
In their briefing, in support of their argument that respondent should not be
considered an employee for purposes of analyzing his unconscionability claims,
appellants repeatedly refer to him as “an owner-operator of his own big rig.” There is
absolutely no evidence in the record to support this assertion; we will therefore disregard
it.
6
position vis-à-vis [the partner] akin to that of an employer-employee relationship, and
there is no evidence in this record that Ramos had an opportunity to negotiate the
arbitration provision.” (Ramos, supra, 28 Cal.App.5th at p. 1056.)7
Likewise, in Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1249 (Wherry),
the appellate court applied Armendariz’s requirements in finding unconscionable an
arbitration agreement between the parties even though the plaintiffs were independent
contractors. In its analysis of substantive unconscionability, the court stated: “That
plaintiffs are independent contractors and not employees makes no difference in this
context. The contract by which they were to work for defendants contained a mandatory
arbitration provision.”
In this case, in which there plainly was a power imbalance between the parties,
respondent was required to sign an agreement containing a mandatory arbitration
provision, and the underlying claims involve whether respondent was an employee or an
independent contractor, we find it both unnecessary and inappropriate to resolve the
question of whether respondent was an employee for purposes of our unconscionability
determination under California law. (See Ramos, supra, 28 Cal.App.5th at p. 1056 & fn.
6; Wherry, supra, 192 Cal.App.4th at p. 1249.)8
7
The Ramos court observed that it may also be inappropriate for it to decide
whether Ramos was a partner or an employee since that question “goes to the heart of this
lawsuit and the validity of her FEHA and related employment claims,” and “[i]n deciding
arbitrability, a court does not resolve the merits of the underlying claims. [Citation.]”
(Ramos, supra, 28 Cal.App.5th at p. 1056, fn. 6.)
8
Appellants rely on Performance Team Freight Systems, Inc. v. Aleman (2015)
241 Cal.App.4th 1233, 1237 (Performance Team), in support of their argument that
because respondent is an independent contractor, California law regarding
unconscionability in the employment context does not apply. Appellant’s reliance on
Performance Team is misplaced. The issue there was whether truck drivers were
employees or independent contractors for purposes of determining whether they were
“transportation workers” who were exempt from arbitration under section 229.
(Performance Team, at p. 1243.) This has nothing to do with the issue we address in this
case: whether the arbitration provision signed by appellants and respondent was
unconscionable. With respect to that issue, the Performance Team court found only that
7
B. Procedural Unconscionability
“ ‘ “The procedural element of an unconscionable contract generally takes the
form of a contract of adhesion, ‘ “which, imposed and drafted by the party of superior
bargaining strength, relegates to the subscribing party only the opportunity to adhere to
the contract or reject it.” ’ ” [Citation.]’ ” (Sonic II, supra, 57 Cal.4th at p. 1132; accord,
Armandariz, supra, 24 Cal.4th at pp. 114–115 [when an arbitration agreement is imposed
on an employee as a condition of employment and there is no opportunity to negotiate,
arbitration agreement is adhesive].)
In the present case, the trial court found that the arbitration clause was
procedurally unconscionable in that SCI “presented the adhesive contract in a take-it-or-
leave-it manner and respondent . . . , whose English skills are limited, was asked to sign it
‘on the spot.’ [Citation.] Paragraph 26 of the Agreement refers to the American
Arbitration Association, but the Agreement does not clearly state what rules will govern
the arbitration proceedings and [respondent] was never provided with a copy of the
governing rules. . . .” Appellants “concede[] that, for purposes of this appeal, [the trial
court’s] finding of a ‘moderate level’ [of] procedural unconscionability was not made in
error.”
We agree with the trial court and the parties that the arbitration clause was
procedurally unconscionable.
First, the Agreement containing that clause was adhesive in that it was imposed on
respondent “as a condition of employment” and with “no opportunity to negotiate.”
(Armendariz, supra, 24 Cal.4th at p. 115 [“in the case of preemployment arbitration
contracts, the economic pressure exerted by employers on all but the most sought-after
the truck drivers had not submitted any evidence of procedural unconscionability and, for
that reason only, found that the agreement could not be deemed unenforceable due to
unconscionability. Whether or not the drivers were independent contractors had no
bearing on the court’s consideration of unconscionability. (Id. at pp. 1247–1248.)
Indeed, in addressing the issue, the court cited Armendariz and other employment cases
in finding that the subject agreements contained terms that would support a finding of
substantive unconscionability. (Performance Team, at p. 1247.)
8
employees may be particularly acute, for the arbitration agreement stands between the
employee and necessary employment, and few employees are in a position to refuse a job
because of an arbitration requirement”].)9
Second, respondent, who was not fluent enough in English to fully understand
legal documents written in English, did not understand what arbitration was and no one
explained to him the meaning of any of the 27 clauses in the five-page Agreement,
including the arbitration clause. (See Samaniego v. Empire Today LLC (2012) 205
Cal.App.4th 1138, 1142, 1145–1146 [finding procedural unconscionability where
workers who spoke English as a second language were required to sign an 11-page
single-spaced agreement written in English, which was “riddled with complex legal
terminology” and in which arbitration provision was set forth in 36th of 37 sections].)
Third, the arbitration clause referred to the American Arbitration Association, but
did not clearly state what rules would govern arbitration, nor was respondent provided
with a copy of the governing rules. (See Carbajal v. CWPSC, Inc. (2016) 245
Cal.App.4th 227, 245 [level of oppression is increased when “the employer not only fails
to provide a copy of the governing rules, but also fails to clearly identify which rules will
govern so the employee could locate and review them”]; compare Baltazan v. Forever
21, Inc. (2016) 62 Cal.4th 1237, 1246 [no increased showing of procedural
unconscionability where arbitration agreement set forth rules that would govern
arbitration, but copy of rules was not provided].)
Having determined that the arbitration clause contains at least a moderate level of
procedural unconscionability, we will consider whether the clause is also substantively
unconscionable.
9
Moreover, that respondent apparently electronically signed the same Agreement
twice in later years does not change our conclusion that he was required to sign the
Agreement if he wanted to work for SCI and that the Agreement was non-negotiable.
(See Ramos, supra, 28 Cal.App.5th at p. 1058, fn. 7 [“the fact that Ramos had 30 days to
sign the Partnership Agreement and was able to talk with someone about it does not
demonstrate the arbitration provision was negotiable”].)
9
C. Substantive Unconscionability
“ ‘Substantive unconscionability addresses the fairness of the term in dispute. [It]
“traditionally involves contract terms that are so one-sided as to ‘shock the conscience,’
or that impose harsh or oppressive terms.” [Citation.]’ ” (Wherry, supra, 192
Cal.App.4th at p. 1248.)
The court found the arbitration clause substantively unconscionable because “[t]he
Agreement requires the parties to share the costs of arbitration and such costs are often
prohibitively expensive and pose a barrier for an alleged employee such as [respondent]
to vindicate his legal rights. [Citation.] The Agreement not only precludes [respondent]
from taking advantage of the relatively inexpensive remedy of a hearing before the Labor
Commissioner, it also bars representative and private attorney general claims. The
arbitration Agreement also bars the recovery of punitive damages, statutory penalties,
equitable relief, and attorney’s fees, which deprives [respondent] of statutory remedies.”
We agree with the trial court that the arbitration clause contains numerous
substantively unconscionable provisions.
As a preliminary matter, appellants argue that certain provisions in the arbitration
clause, including the bar to recovery of attorney fees and the Private Attorneys General
Act (PAGA) waiver, cannot be found unconscionable because respondent has not
attempted to pursue those claims or remedies in his administrative wage claim. The
question in determining unconscionability, however, does not involve comparing the
terms of the arbitration clause with the non-arbitration claims respondent is pursuing.
Rather, under Civil Code section 1670.5, subdivision (a), we review the arbitration clause
for substantive unconscionability at the time the agreement was made. (See Sonic II,
supra, 57 Cal.4th at p. 1134 [“ ‘In determining unconscionability, our inquiry is into
whether a contract provision was ‘unconscionable at the time it was made” ’ ”].)
Turning to the provisions in question, first, the arbitration clause requires
respondent to bear his own costs for arbitration. As the Labor Commissioner points out
in her briefing, “it is fair to assume that the cost [to respondent] would be substantial
given that the Agreement requires three arbitrators, each having both a transportation and
10
legal background.” The trial court correctly found that this term was substantively
unconscionable. (See Armendariz, supra, 24 Cal.4th at pp. 110–111 [“when an employer
imposes mandatory arbitration as a condition of employment, the arbitration agreement or
arbitration process cannot generally require the employee to bear any type of expense that
the employee would not be required to bear if he or she were free to bring the action in
court”].)
Second, the clause bars respondent from recovering any attorney fees or other
costs. Our Supreme Court has “held that the FAA does not require enforcement of a
provision in an arbitration agreement that, in violation of generally applicable California
contract law, ‘limit[s] statutorily imposed remedies such as punitive damages and
attorney fees.’ [Citation.]” (McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 963, quoting
Armendariz, supra, 24 Cal.4th at p. 103.)
Third, the arbitration clause states that the arbitrators “have authority to award
actual monetary damages only. No punitive or equitable relief is authorized.” Under
these provisions, respondent is barred from seeking statutory remedies, including punitive
damages, statutory penalties, and equitable relief. This would preclude respondent from
pursuing statutory penalties against SCI for (1) failing to provide accurate itemized wage
statements pursuant to section 226 and (2) failing to timely pay all wages upon his
separation from employment pursuant to section 203.10 These Labor Code provisions
cannot “in any way be contravened or set aside by a private agreement.” (§ 219, subd.
(a).) Hence, like the provision precluding an award of attorney fees, this limitation
10
Appellants state that these provisions are “admittedly ambiguous” on the
availability of statutory penalties, but assert that such ambiguity must be interpreted “in a
fashion that would uphold [their] validity.” (Citing Civ. Code, § 1643 [“A contract must
receive an interpretation as will make it lawful, operative, definite, reasonable, and
capable of being carried into effect, if it can be done without violating the intention of the
parties”]; Civ. Code, § 3541 [“An interpretation which gives effect is preferred to one
which makes void”].) These provisions are not ambiguous, however. They clearly
provide that only actual monetary damages, not statutory penalties such as those
discussed in the text, ante, are recoverable under the arbitration clause.
11
improperly “undermine[s] statutory protections” to which respondent would otherwise be
entitled. (Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1147; see Civ.
Code, § 3513 [“a law established for a public reason cannot be contravened by a private
agreement”]; see also McGill v. Citibank, N.A., supra, 2 Cal.5th at p. 963; Armendariz,
supra, 24 Cal.4th at p. 103.)11
Fourth, the clause improperly bars respondent from arbitrating any PAGA claims.
Our Supreme Court has held that “an employee’s right to bring a PAGA action is
unwaivable.” (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348,
383, citing §§ 2699, 2699.3.) As the court explained, “an agreement by employees to
waive their right to bring a PAGA action serves to disable one of the primary
mechanisms for enforcing the Labor Code. Because such an agreement has as its ‘object,
. . . indirectly, to exempt [the employer] from responsibility for [its] own . . . violation of
law,’ it is against public policy and may not be enforced. (Civ. Code, § 1168.)”
(Iskanian, at p. 383.)
Fifth, as the trial court found, the arbitration clause precluded respondent “from
taking advantage of the relatively inexpensive remedy before the Labor Commissioner.”
Appellants observe that “[i]n Sonic II, our Supreme Court held that an otherwise valid
arbitration agreement may not be deemed substantively unconscionable merely on the
basis that it requires an employee to waive his right to a Berman hearing.” (See Sonic II,
supra, 57 Cal.4th at p. 1146.) However, as appellants also acknowledge, the Sonic II
court further held that an arbitration agreement requiring waiver of the protections
11
In light of our conclusion that the provision permitting recovery of actual
monetary damages only is substantively unconscionable, we need not address
respondent’s related assertion “that rights that arise based on the application and
interpretation of an alleged independent contractor agreement are distinct from statutory
rights arising out of the California Labor Code,” and therefore respondent’s Labor Code
claims are not encompassed by the arbitration clause. (Citing Elijahjuan v. Superior
Court (2012) 210 Cal.App.4th 15, 17, 21 [finding that workers’ claims seeking to enforce
rights arising under Labor Code were outside scope of arbitration provision where
provision applied “only to disputes regarding the ‘application or interpretation’ of the
parties’ contracts”].)
12
provided in a Berman hearing in favor of arbitration that “does not provide an employee
with an accessible and affordable arbitral forum for resolving wage disputes may support
a finding of unconscionability.” (Ibid.)12
The arbitration clause in the present case would deprive respondent of the
protections provided in the Berman hearing process, replacing those protections with
costs and obstacles he would not otherwise face.13 It would also significantly limit the
12
In a previous decision in that case, Sonic-Calabasas A, Inc. v. Moreno (2011) 51
Cal.4th 659 (Sonic I), our Supreme Court had “held as a categorical rule that it is contrary
to public policy and unconscionable for an employer to require an employee, as a
condition of employment, to waive the right to a Berman hearing.” (Sonic II, supra, 57
Cal.4th at p. 1124.) The Sonic I court “did not invalidate the arbitration agreement at
issue,” but instead “held that if one of the parties is dissatisfied with the result of the
Berman hearing, it [could] move to arbitrate the wage dispute consistent with the
arbitration agreement, just as a dissatisfied party can obtain a trial in court without such
an agreement.” (Sonic II, at p. 1124.) The United States Supreme Court granted
certiorari before vacating the judgment and remanding the case to the California Supreme
Court for consideration in light of AT&T Mobility LLC v. Concepcion (2011) 563 U.S.
333 (Concepcion), in which “the high court clarified the limitations that the FAA imposes
on a state’s capacity to enforce its rules of unconscionability on parties to arbitration
agreements.” (Sonic II, at p. 1124.)
In light of Concepcion, Sonic II held “that the FAA preempts our state law rule
categorically prohibiting waiver of a Berman hearing in a predispute arbitration
agreement imposed on an employee as a condition of employment. [¶] At the same time,
we conclude that state courts may continue to enforce unconscionability rules that do not
‘interfere[] with fundamental attributes of arbitration.’ [Citation.] Although a court may
not refuse to enforce an arbitration agreement imposed on an employee as a condition of
employment simply because it requires the employee to bypass a Berman hearing, such
an agreement may be unconscionable if it is otherwise unreasonably one-sided in favor of
the employer.” (Sonic II, supra, 57 Cal.4th at pp. 1124–1125, quoting Concepcion,
supra, 563 U.S. at p. 344.)
13
The Sonic II court observed that the “Berman statutes [(§§ 98–98.8)] include
various features designed to lower the costs and risks for employees in pursuing wage
claims, including procedural informality, assistance of a translator, use of an expert
adjudicator who is authorized to help the parties by questioning witnesses and explaining
issues and terms, and provisions on fee shifting, mandatory undertaking, and assistance
of the Labor Commissioner as counsel to help employees defend and enforce any award
13
remedies that would otherwise be available, as discussed above. Therefore, because the
arbitration clause requires respondent to waive all of the protections and many of the
remedies available at a Berman hearing, without providing him “with an accessible and
affordable arbitral forum for resolving wage disputes,” we conclude the trial court
correctly found the clause substantively unconscionable on this ground as well. (Sonic II,
supra, 57 Cal.4th at p. 1146.)
II. Severance
Under Civil Code section 1670.5, subdivision (a), “[i]f the court as a matter of law
finds the contract or any clause of the contract to have been unconscionable at the time it
was made the court may refuse to enforce the contract, or it may enforce the remainder of
the contract without the unconscionable clause, or it may so limit the application of any
unconscionable clause as to avoid any unconscionable result.” In determining whether to
sever an unconscionable term, the court must consider the interests of justice.
(Armendariz, supra, 24 Cal.4th at p. 124; Wherry, supra, 192 Cal.App.4th at p. 1242.)
We review the trial court’s refusal to sever the unconscionable terms for an abuse of
discretion. (Armendariz, at p. 122.)
In this case, the court found that the arbitration clause was “permeated with
unconscionability and thus severance of the unconscionable terms is not possible.”
Appellants contend the court abused its discretion when, instead of severing the
unconscionable terms, it concluded the arbitration clause as a whole could not be
enforced.
In Armendariz, the court identified three factors relevant to whether severance is
appropriate. First, “[i]f the central purpose of the contract is tainted with illegality, then
the contract as a whole cannot be enforced.” (Armendariz, supra, 24 Cal.4th at p. 124.)
Second, the fact that an “arbitration agreement contains more than one unlawful
provision” may “indicate a systematic effort to impose arbitration on an employee . . . as
on appeal.” (Sonic II, supra, 57 Cal.4th at p. 1146.) Arbitration under SCI’s arbitration
provision would provide none of these features.
14
an inferior forum that works to the employer’s advantage” and may justify a conclusion
“that the arbitration agreement is permeated by an unlawful purpose.” (Ibid., fn.
omitted.) Third, if “there is no single provision a court can strike or restrict in order to
remove the unconscionable taint from the agreement,” the court would have to “reform
the contract, not through severance or restriction, but by augmenting it with additional
terms,” which would exceed its power to cure a contract’s illegality. (Id. at p. 125.)
Here, we have found that, in addition to at least a moderate level of procedural
unconscionability, the central purpose of the arbitration provision is to evade the statutory
protections and limit the remedies available to respondent, as reflected in the numerous
specific provisions that are substantively unconscionable. (See Armendariz, supra, 24
Cal.4th at p. 124.) “Such multiple defects indicate a systematic effort to impose
arbitration” on respondent “as an inferior forum that works to [appellants’] advantage.”
(Ibid.) Thus, because there is no single provision that can be stricken to “remove the
unconscionable taint from the agreement,” the trial court did not abuse its discretion
when it found the arbitration clause could not be enforced. (Id. at pp. 122, 124–125.)14
DISPOSITION
The trial court’s order denying appellants’ petition to compel arbitration and stay
proceedings is affirmed. Costs on appeal are awarded to respondent.
_________________________
Kline, P.J.
We concur:
In light of this conclusion, we need not address the Labor Commissioner’s
14
argument that the provision in the Agreement stating that the entire contract is subject to
New York law is also substantively unconscionable.
15
_________________________
Richman, J.
_________________________
Stewart, J.
Subcontracting Concepts (CT), LLC, et al. v. De Melo; Depertment of Industrial
Relations, Division of Labor Standards Enforcement (A152205)
16
Trial Court: San Francisco City and County Superior Court
Trial Judge: Honorable Harold F. Kahn
Attorneys for Appellants: Buchalter
Robert Scott Cooper
Marron Lawyers
Paul Marron
Paul B. Arenas
Attorneys for Respondent: Breall & Breall
Joseph M. Breall
Attorneys for Intervener Jimmy Macias
Theresa Bichsel
17