In Alberto v. Cambrian Homecare (2023) 91 Cal.App.5th 482, a headline-grabbing April 2023 decision, the California Court of Appeal affirmed a trial court’s ruling invalidating an employee’s arbitration agreement. Notably, the Court found three separate provisions contained within three separate agreements signed by the employee in their hiring / onboarding materials—the arbitration agreement and two confidentiality agreements—as evidence of irreparable unconscionability in the arbitration agreement. The subject provisions found unlawful by the Court were (1) a clause in the arbitration agreement providing the employer a unilateral right to seek injunctive relief against the employee in court without the need to post a bond, (2) a provision in the confidentiality agreement prohibiting the employee from disclosing to or discussing with others wages and working conditions (a direct violation of California Labor Code Section 232), and (3) a wholesale waiver of all California Labor Code Sections 2698 et seq. Private Attorney General Act (“PAGA”) claims in any forum (arbitration and court) contained in an addendum to the confidentiality agreement.
Critical to the Alberto Court’s analysis and the attendant understanding of its opinion, is the applicable abuse of discretion standard of review and the presence of not one, not two but three unconscionable provisions in the applicable agreements being reviewed. These unique facts raise serious questions about whether the Court would have ruled differently if (1) it had reviewed the employee’s appeal of an adverse ruling finding the arbitration agreement enforceable (as opposed to the reverse) or (2) there had been only one or two invalid provisions amongst the three agreements the employee was required to sign in the onboarding process. Specifically, the Court explained its fact and standard of review-specific decision as follows:
“We find that the trial court’s determination that the agreement was permeated by unconscionability, while not required, was within its discretion. One factor weighing against severance is when the arbitration agreement contains more than one unlawful provision. As discussed above, three aspects of the agreements are unconscionable: the carve-outs permitting Cambrian to obtain an injunction from the courts on one-sided terms on matters more significant to Cambrian while relegating the claims most significant to Alberto to arbitration, the illegal prohibition on Alberto discussing her wages, and the waiver of PAGA claims. Taken together, the trial court could have reasonably concluded that ‘[s]uch multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage.’”
Although the widespread impact of the Court’s holding in Alberto concerning the enforceability of arbitration agreements may very well be limited to the facts and standard of review unique to the case, the decision demonstrates a few critical lessons and takeaways for employers:
- Employers should narrowly tailor arbitration agreements so that all claims by and between the employee and employer are mutually subject to arbitration and they contain no employer-unilateral carve outs for injunctive relief or wholesale waivers of PAGA claims.
- The most conservative approach to creating a valid binding arbitration agreement is to prepare a standalone agreement signed by both the employer and employee and to include a copy of the applicable California-compliant employment arbitration rules of a selected and reputable arbitration service provider (e.g., ADR Services, JAMS, Judicate West etc.) within the arbitration agreement as the applicable bases for the arbitration to be administered, adjudicated and enforced.
- Do not include obviously invalid / unconscionable provisions in any agreements which the employer requires its employees to sign. For example, in Alberto, the employer’s attempt to prohibit employees from discussing wages and working conditions under the guise that such information constitutes company “trade secrets” was heavy-handed at best but also in direct contravention of California Labor Code Section 232.
- Thinking you can push the envelope with an invalid provision hoping to dissuade an employee from suing you or, if you are sued, hoping a court would simply sever an invalid provision and enforce the rest of your agreement, is a risky endeavor and not recommended for those employers seeking to avoid litigation. In addition to the potential loss of an otherwise valid arbitration agreement as occurred in Alberto, including unconscionable / unlawful provisions in any agreement that employers require employees to sign, in itself, exposes employers to potential PAGA liability under California Labor Code Section 432.5. In that instance, an employer may face a PAGA court case based solely on facially unlawful provisions in its pro forma / template onboarding documents.
In sum, the Alberto case illustrates why California employers must make sure their employment onboarding documents, processes and procedures are vetted and periodically updated by experienced California employment law attorneys.
Scherer Smith & Kenny LLP remains available to guide you through these and other nuances in California’s dynamic and ever-changing employment law arena. For additional information, please contact Denis Kenny at dsk@sfcounsel.com, Ryan Stahl at rws@sfcounsel.com, John Lough, Jr. at jbl@sfcounsel.com, or Jaclyn Tran at jaclyn@sfcounsel.com.
-Written by Denis Kenny