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Don’t lose your right to arbitrate – separate provisions can permeate

8/9/23

By: Lynn Hollenbeck

Employers, beware. The Arbitration Agreement you have your employees sign may be rock solid, but an unconscionable provision in another onboarding document can permeate and vitiate it. In a case decided in April 2023 by the Second District Court of Appeals, Alberto v. Cambrian Homecare, 91 Cal.App.5th 482 (2023), former employee Alberto filed a complaint against Cambrian Homecare alleging wage and hour claims as an “aggrieved employee” under the Private Attorney General Act (“PAGA”). Naturally, Cambrian petitioned to compel arbitration based on the Arbitration Agreement signed by Alberto. Unfortunately, contemporaneously with the Arbitration Agreement, Alberto signed a Confidentiality Agreement with a provision prohibiting the disclosure or discussion of compensation. That prohibition violates Labor Code section 232 and the Court thus found it unconscionable. Keep in mind, the Confidentiality Agreement was a separate document from the Arbitration Agreement. Nonetheless, the Court of Appeals agreed with the trial court and adopted plaintiff’s argument that although “standing alone,” none of the clauses in the Arbitration Agreement were unconscionable – it was “infected with both procedural and substantive unconscionability, the taint of which cannot be severed or cured.”

In a bizarre contortion of legal reasoning, the Court of Appeals found that because the two documents were executed as part of the same transaction – Alberto’s hiring – the Arbitration Agreement was “permeated by unconscionability” and unenforceable. The Court also found that the trial court’s refusal to sever the unconscionable provision was within its discretion.

The takeaway for employers? Have your onboarding documents reviewed for illegal or unconscionable provisions (such as prohibitions on disclosure of compensation) that could seep into and eviscerate your perfectly good Arbitration Agreement.

For more information, please contact Lynn Hollenbeck (Lynn.Hollenbeck@fmglaw.com), Daniel Jett (djett@fmglaw.com), or your local FMG attorney.