Carmona v. Lincoln Millennium Car Wash, Inc., B248143 (pub. order May 9, 2014): In a recent decision, a California Court of Appeal upheld a trial court’s finding that an arbitration agreement was unconscionable. The appellate court also upheld the lower court’s refusal to sever the nonoffensive parts of the agreement from the unconscionable provisions. In finding that the agreement was “permeated with unconscionability,” the court pointed to the agreement’s “systemic lack of mutuality” in favor of the employer without justification.
Lincoln Millennium Car Wash, Inc. and Silver Wash, Inc. required their employees to sign an employment agreement shortly after they were hired. The employees were native Spanish speakers and did not read English. Parts of the documents that the employees signed were in Spanish and other parts were in English. The employees believed that they were signing work applications, which they understood were required in order to work at the car washes. The manager of the car washes did not explain the documents to the employees and did not tell them that they were waiving their rights to appear before a court.
A group of car wash employees filed a putative class action lawsuit against the employers for wage and hour violations. The employers petitioned to compel arbitration pursuant to the agreements that the employees had signed.
The trial court held that the arbitration agreement was both procedurally and substantively unconscionable. The trial court’s finding that the agreement had “a large amount of procedural unconscionability” was based on the fact that: 1) the agreement was presented on a “take it or leave it basis”; 2) the employers did not provide the employees with a copy of the arbitration rules referenced in the agreement; and 3) some of the key parts of the agreement were not translated to Spanish.
In determining whether the agreement was substantively unconscionable, the court considered the agreement’s degree of mutuality. The court came to the conclusion that the agreement lacked mutuality on the basis that: 1) the enforceability clause allowed the employers to bring an action in court, but limited the employee to arbitration; 2) the same enforceability clause also included a presumption that a breach of the agreement’s confidentiality provision would result in immediate, irreparable harm to the employers but did not include a parallel presumption in the employees’ favor; 3) the enforceability clause entitled the employers to recover attorneys’ fees and costs but did not give the employees the same right; and 4) the arbitration clause required employees to discuss disputes with management before disclosing any information to third parties, giving the employers a “free peek” at issues they may face in arbitration.
In agreeing with the trial court, the Court of Appeal noted, “The arbitration agreement suffered from multiple defects demonstrating a systemic lack of mutuality that favored the car wash companies.” Relying on the 2000 California Supreme Court case, Armendariz v. Foundation Health Psychcare Services, Inc., for much of its analysis, the Court of Appeal pointed out that not all one-sided agreements are unconscionable—but here, the employers did not “justif[y] the lack of mutuality with reference to business realities.”
According to Spencer Skeen, the managing shareholder of the San Diego office of Ogletree Deakins: “This case illustrates how important it is to be precise when drafting an arbitration agreement. The agreement should always be mutual. It should provide the employer and employee with the same rights and obligations. In addition, it should be translated into the employee’s primary language. The employees in the Carmona case spoke Spanish. The employers translated only part of the agreement and left many important sections in English only. Spanish is the primary language for a significant percentage of the California population. For this reason, employers should consider translating their arbitration agreements into Spanish or any other language that might apply to their workforce.”
Note: This article was published in the May 2014 issue of the California eAuthority.