Quach v. California Commerce Club Inc.,551 P.3d 1123 (Cal. 2024)

See our in-depth analysis Employers, Don’t Waive Your Right to Compel Arbitration – The California Supreme Court Just Made It Easier to Do.

Bailey v. San Francisco District Attorney’s Office, No. S265223, 2024 WL 3561569 (Cal. July 29, 2024)

Summary: Courts must consider allegations of a racially hostile workplace “from the perspective of a reasonable person belonging to the racial or ethnic group of the plaintiff.” Under this framework, “a single racial epithet can be so offensive it gives rise to a triable issue of actionable harassment.”

Facts: Plaintiff Twanda Bailey, a former investigative assistant for the San Francisco District Attorney’s Office, sued Defendants the San Francisco District Attorney’s Office, former District Attorney George Gascon, and the City and County of San Francisco for violations of the California Fair Employment and Housing Act (“FEHA”). Plaintiff, who was African-American, alleged that one of her former coworkers, with whom she shared an office and job duties, called her the “N-word.” Plaintiff also alleged that after she reported this incident, the human resources manager for the District Attorney’s Office obstructed the filing of a formal complaint, intimidated Plaintiff, caused workplace stress, and threatened Plaintiff that she was “going to get it.” Plaintiff’s action against Defendants alleged that she was subjected to racial harassment by her coworker and retaliation by the human resources manager after complaining of the harassment. The trial court granted Defendants’ motion for summary judgment, finding that Plaintiff had failed to make a prima facie showing on her FEHA claims. Plaintiff timely appealed, and the California Court of Appeal affirmed. Plaintiff petitioned for review.

Court’s Decision: The California Supreme Court reversed and remanded. The court held that a coworker’s one-time use of a racial slur may be actionable in a claim of harassment. The court reasoned that an isolated act may be sufficiently severe to be actionable in light of the totality of the circumstances, and that a coworker’s use of an unambiguous racial epithet, such as the N-word, may suffice. Although the court noted that while simple teasing, offhand comments, and isolated incidents (unless extremely serious) are not sufficient to create an actionable claim of harassment, courts must consider allegations of a racially hostile workplace “from the perspective of a reasonable person belonging to the racial or ethnic group of the plaintiff.” The court also concluded that a course of conduct that effectively seeks to withdraw an employee’s means of reporting and addressing racial harassment in the workplace is actionable in a claim of retaliation because such conduct may constitute an adverse employment action. Here, the court found that the record presented triable issues of fact on Plaintiff’s harassment and retaliation claims.

Practical Implications: Our advice here is simple: take seriously all complaints and reports of suspected harassment. Even isolated, single instances of misconduct can create a hostile work environment. Do not dismiss such allegations as a one-off. Promptly investigating and responding to these allegations is critical, first and foremost, to creating a safe and productive work environment. And as Bailey shows us, it is also critical to defending against later claims.

Ramirez v. Charter Communications Inc.,16 Cal. 5th 478 (2024)

Summary: No bright-line rule exists requiring a court to refuse enforcement of an arbitration agreement if the agreement has more than one unconscionable term. The appropriate inquiry is a qualitive one, not a quantitative one, and severance is the preferred course for unconscionable provisions that are collateral to the agreement’s main purpose.

Facts: Plaintiff Angelica Ramirez signed Defendant Charter Communications Inc.’s arbitration agreement (“Agreement”) when she was hired to work for Defendant in July 2019. In July 2020, Plaintiff sued Defendant alleging claims for discrimination, harassment, and retaliation under the California Fair Employment and Housing Act (“FEHA”) and a claim of wrongful discharge in violation of public policy. Defendant moved to compel arbitration. Plaintiff argued that the Agreement was both procedurally and substantively unconscionable. Defendant responded that the Agreement was not unconscionable, but to the extent it was, such unconscionable provisions should be severed and the rest of the Agreement should be enforced. The trial court agreed with Plaintiff, found that the Agreement was “permeated with unconscionability,” and denied Defendant’s motion to compel arbitration. Defendant appealed. The California Court of Appeal affirmed but disagreed with aspects of the trial court’s reasoning. In doing so, the court concluded that other provisions in the Agreement were also unconscionable. Defendant petitioned for review.

Court’s Decision: The California Supreme Court reversed and remanded. After finding that the Agreement presented only a low degree of procedural unconscionability, the court turned its analysis to substantive unconscionability, specifically: (1) the lack of mutuality in the covered and excluded claims provisions; (2) the shortened limitations periods for filing; (3) the limited number of permitted depositions; and (4) the potential for an unlawful award of attorneys’ fees. First, the court found substantive unconscionability because the Agreement compelled arbitration of claims that were more likely to be brought by an employee, but excluded claims more likely to be brought by Defendant. The court held that the Agreement could not require “one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.” The court reasoned that to do so constitutes a lack of mutuality. Second, the court found substantive unconscionability because the Agreement placed shortened time limits on the filing of covered claims. The Agreement required an aggrieved party to file a FEHA claim with Defendant’s alternative dispute resolution program within one year while the aggrieved party would normally have up to three years to do so (including the time within which to file an administrative complaint, the time allowed for the state agency to investigate, and the time to file a civil action after the agency closes its case). The court held that the shortened limitations period must be reasonable, and in this case, it was not. Third, the court found it substantively unconscionable that the Agreement sought to force an employee who failed or refused to submit to arbitration to pay all costs, fees, and expenses, including attorneys’ fees, to the employer. The court reasoned that such an Agreement did not comport with the Legislature’s intent that defendants must not be awarded fees and costs in FEHA actions unless the action is found to be frivolous. Fourth, the court held that it was not substantively unconscionable for the Agreement to limit discovery so long as the arbitrator was given sufficient authority to order additional discovery if necessary. The court next analyzed whether the unconscionable provisions could be severed. To that end, the court clarified that no bright-line rule requires a court to refuse enforcement if an agreement has more than one unconscionable term and specified that the appropriate inquiry is a qualitive one, not a quantitative one. The court further held that severance or restriction is the preferred course for unconscionable provisions that are collateral to the agreement’s main purpose. The court also noted that where an agreement contains a severance clause, the court should take such clause into account as an expression of the parties’ intent that an agreement curable by removing defective terms should otherwise be enforced.

Practical Implications: It is time again for our periodic reminder to review your employment arbitration agreements. Though Ramirez arguably softens the unconscionable standard by eliminating the rigid rule that more than one unconscionable terms necessarily dooms an agreement, it is not grounds for complacency. Review your employment arbitration agreements carefully and often, and pay attention to continuing legal developments in this space (our alerts are a great place for updates!). If you have questions, contact your trusted Payne & Fears employment counsel to discuss whether changes may be necessary.