Carbajal v. CWPSC, Inc.
245 Cal. App. 4th 227
| Cal. Ct. App. | 2016Background
- Carbajal, a UCSD student, signed a preprinted 2012 employment "intern" agreement with CWPSC, Inc. (CW Painting) that included an AAA arbitration clause, a class-action waiver, an attorney-fees waiver, a $10,000 liquidated-damages confidentiality remedy, and a carve-out allowing CW Painting to obtain injunctive relief in court without posting a bond.
- Carbajal later sued CW Painting as a putative class action alleging multiple California Labor Code wage-and-hour violations and related claims.
- CW Painting moved to compel individual arbitration under the agreement and argued the Federal Arbitration Act (FAA) preempted state law barriers to enforcement.
- Carbajal opposed, arguing the FAA did not apply (no showing of interstate commerce), the arbitration clause was procedurally and substantively unconscionable, and statutory law barred arbitration of Labor Code wage claims; CW Painting submitted some new commerce-related evidence with its reply.
- The trial court denied the motion to compel arbitration, finding procedural and substantive unconscionability. The Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the FAA apply to the agreement? | FAA does not apply because CW Painting failed to show the contract "involved commerce." | FAA applies and preempts state rules; CW Painting pointed to phone use and, in reply, out-of-state suppliers. | FAA did not apply: CW Painting failed to meet its burden to prove a substantial interstate-commerce connection; reply evidence was improperly submitted and the record lacked timely proof. |
| Was the arbitration clause procedurally unconscionable? | The agreement was adhesive, imposed at hiring, and failed to identify or provide the specific AAA rules or allow review. | Clause is enforceable; AAA rules are publicly available and Employment Rules default. | Procedural unconscionability (moderate): adhesive employment context plus failure to identify/provide governing AAA rules and lack of meaningful choice. |
| Was the arbitration clause substantively unconscionable? | Clause was one-sided: employer may seek injunctive relief in court (including permanent relief) without bond; clause waived employee's statutory attorney-fee remedies. | Carve-outs track statutory rights (e.g., CCP §1281.8); arbitrator can award statutory relief; appeal language is mutual. | Substantive unconscionability (moderate): employer-only injunctive carve-out, waiver of bond requirement, and blanket attorney‑fees waiver that defeats statutory fee remedies made the clause unfair. |
| Should unconscionable terms have been severed and remainder enforced? | Deny enforcement of the whole arbitration provision due to multiple defects permeating the agreement. | Court should sever the offending clauses and compel arbitration of remaining terms. | Court did not abuse discretion by refusing severance: multiple unlawful provisions showed the agreement was permeated by unconscionability. |
Key Cases Cited
- Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal.4th 83 (Cal. 2000) (employment arbitration must be mutual and not unduly one-sided)
- Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (Cal. 2015) (unconscionability doctrine applies to arbitration clauses and uses sliding-scale analysis)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA advances a federal policy favoring arbitration agreements)
- United States v. Lopez, 514 U.S. 549 (U.S. 1995) (limits on commerce power categories)
- Lane v. Francis Capital Mgmt. LLC, 224 Cal.App.4th 676 (Cal. Ct. App. 2014) (party asserting FAA must present evidence the contract affects interstate commerce)
- Trivedi v. Curexo Tech. Corp., 189 Cal.App.4th 387 (Cal. Ct. App. 2010) (employer-only carve-outs for injunctive relief can render arbitration provision unconscionable)