Valdez v. Santa Lucia Preserve Co., No. H040685 (March 23, 2015): In an unpublished opinion, the California Court of Appeal for the Sixth Appellate District overturned a trial court’s ruling denying an employer’s motion to compel arbitration. In applying California’s Armendariz standard, the court disagreed with the trial court’s order and found that the plaintiff’s arguments lacked merit to establish substantive unconscionability. In finding that such substantive unconscionability was not present in the agreements, the court, importantly, did not reach the question of procedural unconscionability (or severance) as an arbitration agreement is unconscionable only if both procedural and substantive unconscionability is found.

The plaintiffs filed a putative class action complaint alleging wage and hour violations against their former employer. In response, the employer filed a motion to compel arbitration and stay the action based on arbitration agreements executed by the plaintiffs. The arbitration agreements were identical and required the plaintiffs and their employer to mutually arbitrate employment-related disputes. The motion was strongly contested, with the plaintiffs contending that the arbitration agreements were both procedurally and substantively unconscionable. Specifically, the plaintiffs claimed that (1) the employment documents they signed were never identified as containing an arbitration agreement; (2) they spoke Spanish as their first language and were not provided with an explanation or translation of the agreement; (3) they were not provided the JAMS rules referenced in the agreement; (4) the agreement did not mutually apply to the employee and the employer; and (5) they were not given a chance to opt-out. The employer presented supporting declarations and arguments contesting these issues, particularly that bilingual review of the agreements was provided and that the arbitrations were, in fact, mutually applicable to both the employees and the company. The trial court sided with the plaintiffs, denying the motion to compel.

On appeal, the Sixth Appellate District provided a thorough analysis of the substantive unconscionability claims made by the plaintiffs. According to the court, the plaintiffs’ arguments that the arbitration agreement lacked mutuality, did not expressly address written awards, and limited review of arbitration awards for unwaivable statutory rights did not rise to the level of substantial unconscionability.  Specifically, the court found the agreements did impose a mutual obligation to arbitrate on both parties.

More importantly, however, the court found the limited review language (“You also understand that the award of the arbitrator(s) is subject only to limited review and may not be altered or overturned even if it is incorrect legally or factually”) was not unconscionable. The argument, here, focused primarily on limiting review in Fair Employment and Housing Act (FEHA) cases, as the plaintiffs’ complaint sought recovery for unwaivable statutory rights. The plaintiffs, therefore, argued that their arbitration was subject to the Armendariz requirements, including a written arbitration decision and sufficient judicial review as required by statute. The Court of Appeal, however, disagreed with plaintiffs’ argument and the trial court’s ruling, holding that the arbitration agreements did not limit judicial review. Rather, the court found the language as “merely attempts to inform the employee about the legal effect of the arbitration agreement in general, without attempting to unlawfully limit judicial review available.” As such, the court concluded that the inclusion of the disputed sentence did not render the agreements substantially unconscionable.

The court’s decision reaffirmed well-established precedent that even if arbitration agreements are ambiguous, California courts must interpret provisions, if reasonable, in a manner that renders it lawful, as California public policy favors arbitration as an economical means of dispute resolution.

According to Dawn M. Knepper, a shareholder in the Orange County office of Ogletree Deakins, “The Valdez matter is another case in a string of recent decisions that indicate that the courts will uphold a well-written arbitration agreement. Thus, if a company is interested in entering into an alternative dispute arrangement with its employees, it should have the agreement reviewed on an annual basis to ensure that it is in compliance with the latest requirements. This should bring some confidence in knowing such agreements can readily be enforced, outside of the current disputes over litigating PAGA claims.”