Baxter began working for defendant AssetMark Investment Services, Inc. (AssetMark) in February 2001. Genworth acquired AssetMark in August 2006. As AssetMark transitioned to Genworth, Baxter became an employee of Genworth. As a condition of her continued employment, Genworth required Baxter to sign a "Conditions of Employment Acknowledgment" form. Baxter signed the acknowledgment,
The Resolve program sets forth four stages, or "levels," for pursuing dispute resolution. The Resolve program begins with an employer-controlled process before it reaches mediation or arbitration. An employee is required to submit his or her concern in writing to the Resolve administrator. At level one of Resolve, employees are required to discuss their concerns with their immediate manager and a human resources representative. If the concern cannot be resolved at level one, the employee may proceed to level two, which involves a meeting among the employee, a higher-level manager, and a human resources representative in an attempt to resolve the employee's concern. Attorneys are not permitted to participate in levels one and two of Resolve. If the dispute is not resolved at level two, the employee may request mediation (level three) if the dispute arises out of a covered claim, such as claims relating to compensation, involuntary termination, or employment discrimination and harassment. An employee whose dispute is not resolved by mediation at level three may then pursue arbitration at level four.
Baxter alleges she continued to be promoted, get favorable performance evaluations, and receive salary increases during her tenure at Genworth. At some point in 2011, Baxter's role was expanded to include supervisory responsibilities. Baxter alleges she expressed concern about employee evaluation forms that included race, age, and gender coding. Baxter, an African American woman, opposed and protested Genworth's evaluation protocol based upon her good faith belief that evaluating employees on the basis of age, race, and gender was discriminatory and unlawful. She claims she was admonished and subjected to ongoing harassment and retaliation as a result of her concerns about the evaluation protocol. In early 2013, Baxter requested and was granted a medical leave of absence under the California Family Rights Act (CFRA) in order to care for her mother. Baxter was scheduled to return to work in the middle of June 2013.
In August 2014, Baxter filed a complaint for damages against Genworth and AssetMark
Genworth filed a motion to compel arbitration of Baxter's claims after Baxter refused to stipulate to arbitrate her claims pursuant to the Resolve program. AssetMark joined in Genworth's motion. Genworth argued that the arbitration agreement meets the minimum fairness requirements established by California law and that Baxter violated the agreement by filing suit. Baxter opposed the motion.
The trial court denied Genworth's motion to compel arbitration. The court reasoned that the arbitration agreement is both procedurally and substantively unconscionable. Because Baxter was required to sign the agreement as a condition of her continued employment, the court found substantial evidence of "modest procedural unconscionability." The court concluded that a number of features of the arbitration agreement were substantively unconscionable, including default discovery limitations, a prohibition against contacting witnesses, procedural deadlines that effectively shorten the statute of limitations and preclude a meaningful opportunity for a prelitigation FEHA investigation, and accelerated hearing procedures that infringe upon an employee's ability to adequately present his or her case. The court also ruled that severance of the offending provisions was not an option because the arbitration agreement is permeated by unconscionability.
DISCUSSION
I. Governing legal principles and standard of review
Arbitration agreements are "valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract." ( Code Civ. Proc., § 1281.) "California law, like federal law, favors enforcement of valid arbitration agreements." ( Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
Unconscionability " ' "refers to ' "an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party." ' [Citation.] As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results." ' " ( Baltazar v. Forever 21, Inc. (2016)
Both procedural and substantive unconscionability must be present for a court to refuse to enforce a contract, although they need not be present in the same degree. ( Baltazar , supra ,
In Armendariz , our Supreme Court set forth five minimum requirements that must be met in the employer-employee context to ensure that a mandatory arbitration agreement does not curtail an employee's public rights
" 'On appeal from the denial of a motion to compel arbitration, "we review the arbitration agreement de novo to determine whether it is legally enforceable, applying general principles of California contract law." ' [Citation.] Thus, unconscionability is a question of law we review de novo. [Citation.] To the extent the trial court's determination on the issue turned on the resolution of contested facts, we would review the court's factual determinations for substantial evidence." ( Carmona v. Lincoln Millennium Car Wash, Inc. (2014)
In assessing whether the trial court erred in declining to sever any unconscionable provisions and enforce the remainder of the arbitration agreement, we will not reverse the trial court's severance decision unless an abuse of discretion is shown. (See Carmona v. Lincoln Millennium Car Wash, Inc. , supra ,
II. Procedural unconscionability
Procedural unconscionability focuses on " ' "oppression" ' " or " ' "surprise" ' " due to unequal bargaining power. ( Armendariz , supra ,
Here, Baxter had no opportunity to negotiate the terms of the Resolve program. Nor did she have any meaningful choice in the matter. She could either quit her job of over five years or agree to the arbitration terms that were a condition of her continued employment. The Resolve program was presented in a take-it or leave-it manner. Baxter lacked equal bargaining power. These facts present a "high degree of oppressiveness" supporting a finding of procedural unconscionability. (See Fitz , supra ,
Genworth nonetheless contends the arbitration agreement is not procedurally unconscionable. The argument is unpersuasive. It claims numerous California decisions have held that arbitration agreements are not rendered unenforceable simply because they are offered on a take-it or leave-it basis to an employee. To support its argument, Genworth cites cases in which adhesive arbitration agreements were enforced because they were not substantively unconscionable. (See, e.g., Little v. Auto Stiegler, Inc. (2003)
Genworth also purports to rely upon the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011)
We conclude the trial court did not err in finding that the arbitration agreement is procedurally unconscionable.
III. Substantive unconscionability
The substantive element of the unconscionability analysis focuses on overly harsh or one-sided results. ( Little v. Auto Stiegler , supra ,
A. Discovery
1. Prohibition on contacting other employees
The Resolve guidelines prohibit employees and their attorneys from obtaining information outside the formal discovery process. The prohibition applies to the company's proprietary documents but also extends to attempts to question another employee about the aggrieved employee's claim. The guidelines specify that "[a]ny employee who is questioned by another employee or
The trial court concluded that this one-sided prohibition against communicating with coemployees is "grossly unfair to the employee and has serious public policy implications." The court noted that a complaining employee who was prohibited from contacting coemployees would be left to gamble as to which potential witnesses to depose within the limits set by the arbitration agreement, whereas the employer would have unfettered access to its employees and could cherry pick the witnesses it might choose to depose.
Genworth complains the trial court took the prohibition out of context. It claims that the provision, when read in context,
We do not agree with Genworth's characterization of the prohibition against informal discovery as being limited to its proprietary documents or information. The prohibition forbids questioning of coemployees about the substance of an employee's claim. While the Resolve guidelines emphasize that employees shall not "directly or indirectly attempt to obtain copies of the Company's proprietary documents" except through formal discovery, the prohibition against communicating with employees is not limited to the solicitation of proprietary information or documents. This provision of the Resolve guidelines effectively acts as a gag order that limits a complaining employee's ability to informally investigate a claim. As the trial court observed, without the ability to conduct such an informal investigation, an employee will be hampered in his or her ability to effectively tailor the
The prohibition also raises public policy concerns because it effectively threatens employees who choose to voluntarily cooperate with an employee who complains about unlawful discrimination. Under both federal and California law, an employer may not discriminate against an employee who testifies on behalf of another employee or who otherwise assists the complaining employee in connection with a complaint of unlawful discrimination. (See Gov. Code, § 12940, subd. (h) ; 42 U.S.C. § 2000e-3, subd. (a).) The Resolve guidelines violate this public policy by forbidding employees from assisting each other with claims of discrimination except within the confines of the limited formal discovery allowed under the arbitration agreement.
Further, the prohibition against contacting other employees is not necessarily consistent with limitations the law already places on seeking self-help outside the formal discovery process, as Genworth claims. As support for its assertion, Genworth relies on a case that disapproves of any litigant or potential litigant who "converts, interdicts or otherwise purloins documents in the pursuit of litigation outside the legal process ...." ( Pillsbury, Madison & Sutro v. Schectman (1997)
Genworth fails to identify any law or legal principle that forbids an employee from answering a coworker's inquiry about a harassment or discrimination claim. It also fails to cite to any case law supporting the proposition that such a prohibition is valid under California law. We conclude that the prohibition against communicating with other employees is unfairly one-sided and therefore a substantively unconscionable provision.
"Adequate discovery is indispensable for the vindication of statutory claims." ( Fitz , supra ,
The Resolve guidelines set default limitations on discovery that may be conducted in preparation for arbitration. An employee is entitled to receive documents from his or her personnel and medical files. In addition, each party may submit up to ten interrogatories to another party (with each subpart counting as a separate interrogatory), propound five written requests for documents, and depose two individuals for a total of no more than eight hours. The Resolve guidelines give the arbitrator authority to increase the number of depositions, interrogatories, and requests for production "for good and sufficient cause shown" in order "to ensure that a party has a fair opportunity to present a case ...."
Genworth argues the trial court erred in concluding that these discovery provisions are unconscionable. According to Genworth, if the default discovery limits are inadequate in a particular case, the arbitrator has ample authority to expand discovery as necessary to ensure a fair arbitration. And it takes issue with the "speculation" that an arbitrator may deny adequate discovery in a particular case. Genworth cites the principle that the court must assume an arbitrator will act in a reasonable manner in conformity with the law. (See Dotson v. Amgen, Inc. (2010)
Employment disputes are factually complex, and their outcomes "are often determined by the testimony of multiple percipient witnesses, as well as written information about the disputed employment practice." ( Fitz , supra ,
In this factually complex case involving an employee who had a 12-year employment history at Genworth and AssetMark,
In Fitz , supra ,
Genworth contends that discovery provisions substantially similar to those in the Resolve guidelines have been upheld. Genworth relies on Sanchez v. Carmax Auto Superstores California, LLC (2014)
Sanchez and Mercuro are distinguishable. In those cases, the employees failed to establish as a factual matter that the discovery provisions were inadequate to vindicate their statutory rights. (See Sanchez , supra , 224 Cal.App.4th at pp. 404-405,
Here, unlike in Sanchez and Mercuro , Baxter set forth facts tending to show that the default levels of discovery would be inadequate to vindicate her statutory rights. (See Ontiveros v. DHL Express (USA), Inc. (2008)
In addition, while the "good and sufficient cause" standard for additional discovery in the Resolve guidelines is not as onerous as a "compelling need" standard in Fitz , it still presents a more stringent standard than a simple "showing of need," a standard the court concluded did not impose an unreasonable limitation on the arbitrator's authority to increase discovery in Dotson v. Amgen, Inc. , supra , 181 Cal.App.4th at pages 978 and 984,
A FEHA administrative claim must be filed within one year of the employer's discriminatory act, and a lawsuit alleging FEHA claims must be filed in court within one year of the date the DFEH, the administrative agency charged with investigating the claim, issues a "right-to-sue" letter. ( Gov. Code, §§ 12960, subd. (d), 12965, subd. (b).) Factoring in the time required for the DFEH to investigate and respond to the claim, as a practical matter the outside limit to sue under the FEHA may be as long as three years. ( Ellis v. U.S. Security Associates (2014)
The Resolve program requires an employee to initiate a claim within the "applicable statute[ ] of limitations." In the case of claim that requires the filing of a charge with an administrative agency before a court action may be instituted, the Resolve guidelines define the "applicable statute of limitations" as the administrative agency filing deadline. Thus, the "applicable statute of limitations" for a FEHA claim under the Resolve guidelines is one year, which is the limitations period for filing a FEHA administrative claim. ( Gov. Code, § 12960, subd. (d).)
After a claim is initiated at level one of Resolve, an employee must meet certain deadlines before the claim may proceed to the next level. A level two
While parties to an arbitration agreement may agree to shorten the applicable limitations period for bringing an action, a shortened limitations period must be reasonable. ( Ellis , supra ,
In Ellis , supra ,
Genworth contends Resolve does not shorten the statute of limitations. We disagree. The practical effect of the Resolve guidelines is to shorten the period that would otherwise apply to file an action in court. Whereas an aggrieved party would ordinarily have up to three years to file a FEHA action in court (depending upon how quickly the prerequisite administrative claim is handled), under Resolve an aggrieved party has only one year to initiate a complaint. Moreover, an employee must submit to arbitration under the Resolve guidelines within 30 days of Genworth's written notice regarding the outcome of mediation even if a FEHA investigation has not yet been concluded or if the statute of limitations to file a FEHA lawsuit has not yet run. Indeed, given the fast pace at which a claim progresses through the various levels of Resolve, it is conceivable that an employee who promptly
Although the Resolve guidelines allow an aggrieved party to initiate a FEHA claim within one year, instead of the six months that the Ellis court found inadequate, the shortened limitations period is nonetheless insufficient for the reasons explained in Ellis . ( Ellis , supra , 224 Cal.App.4th at pp. 1223-1127,
We observe that the arbitrator has authority under Resolve to extend deadlines for good cause. However, Genworth cannot rely on that provision to excuse an otherwise substantively unconscionable limitations provision in the Resolve guidelines. A provision delegating authority to the arbitrator to resolve question of unconscionability is itself unconscionable. ( Pinela v. Neiman Marcus Group, Inc. (2015)
Accordingly, we conclude the shortened limitations period in Resolve is insufficient to protect an employee's right to vindicate his or her statutory rights and is therefore substantively unconscionable.
The trial court concluded that the Resolve program limits an employee's right to pursue administrative remedies under the FEHA as a practical consequence of the 30-day deadline for seeking arbitration at level four after a mediation is unsuccessful at level three. A right-to-sue letter is a prerequisite to pursuing statutory FEHA claims, which are subject to dismissal unless an employee has exhausted administrative remedies and secured
Genworth claims the trial court misread the Resolve guidelines, which expressly permit employees to pursue administrative remedies. Genworth relies upon a provision in the Resolve guidelines clarifying that they are not intended "to discourage or interfere with the legally protected rights of employees to file administrative claims or charges with government agencies." It also cites a discussion in the Resolve handbook specifying that the program does not "prevent employees from seeking the assistance of any government agency ...." In that same discussion, the Resolve handbook notes that Genworth and the employee "may jointly ask the agency to defer processing the charge so that the Resolve process may be utilized."
If our analysis were limited to the specific language in Resolve cited by Genworth, we would tend to agree with the trial court's conclusion that the program's timelines might force employees to waive their right to an administrative investigation in order to secure an immediate right-to-sue letter. After all, Genworth did not cite any language in the Resolve guidelines that waives the requirement of exhaustion of administrative remedies or the issuance of a right-to-sue letter as a prerequisite to seeking relief for certain statutory claims. Simply declaring that the Resolve guidelines are not intended to interfere with an employee's rights to pursue administrative claims does not change the practical effect of the shortened limitations period. Nor is the problem resolved by agreeing to defer the administrative agency's processing of the charge, because that necessarily defers the issuance of a right-to-sue letter that is a prerequisite to seeking relief. Being allowed to pursue administrative remedies after the conclusion of the arbitration is a hollow right if the employee is barred from pursuing statutory FEHA claims in the arbitration itself due to the failure to exhaust administrative remedies.
Nevertheless, in a section of the Resolve handbook that includes answers to common questions about the program, there is support for the notion that Genworth has agreed to waive the issuance of a right-to-sue letter as a prerequisite to pursuing statutory FEHA claims. Specifically, in response to a
Even though an employee is not precluded from pursuing an administrative investigation after an arbitration conducted pursuant to Resolve, it is nonetheless problematic to require the employee to arbitrate statutory FEHA claims before an administrative investigation can be conducted by the DFEH. As explained in Ellis , the involvement of the DFEH serves an important function. (See Ellis , supra ,
The Ellis court concluded that a provision that "effectively eliminates any meaningful participation by the DFEH" is unreasonable. ( Ellis , supra ,
Accordingly, while we agree with Genworth that Resolve does not preclude an employee from pursuing administrative remedies, we nonetheless conclude that Resolve may deprive an employee of his or her right to have an administrative investigation conducted before the employee is required to pursue statutory FEHA claims in an arbitration. Because the administrative claim process may be beneficial to the employee in pursuing claims against an
D. Default timelines for concluding arbitration
The Resolve guidelines specify that the arbitration must commence within 120 calendar days after an arbitrator is appointed unless "good cause" is shown for an extension or the parties otherwise agree to a later commencement. The arbitrator "shall seek to limit the length of the arbitration hearing to two 8-hour days (16 hours total); provided, however, that the arbitration shall have the authority to extend the length of a hearing as necessary."
The trial court concluded these timelines for commencing and completing an arbitration are unconscionable. It reasoned that the time pressure created by the 120-day timeline is exacerbated by timelines for disclosing witnesses, completing discovery requests, and completing the arbitration itself in under 16 hours. The court concluded that "[f]ew successful employment litigation attorneys will be in a position to suddenly put their practice on hold so as to accommodate this 'rocket docket' hearing procedure." Further, the court found it was unfair to place the burden on the employee to show good cause for extending the timelines.
There is nothing inherently unconscionable about setting a time limit by which an arbitration hearing must be held or limiting the length of such a hearing. Indeed, the very purpose of arbitration is to streamline the proceedings and obtain an expeditious resolution of disputes. (See Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010)
Nevertheless, we tend to agree with the trial court's assessment that the Resolve arbitration timelines would prove to be unreasonably short in a more complex employment dispute such as this one. But we part ways with the
E. Other concerns
Baxter raises two additional concerns about the Resolve program that the trial court did not rely upon in its ruling. First, Baxter complains that the Resolve program gives Genworth an unfair early look at her evidence by requiring her to participate in an informal, company-controlled
As support for her claim that Resolve gives Genworth an unfair preview of her evidence, Baxter relies upon Nyulassy v. Lockheed Martin Corp. (2004)
Baxter argues that the $50 initiation fee is an unfair charge for the privilege of bringing a complaint and constitutes a cost the employee would
Even though we reject Baxter's claims that the Resolve guidelines impose an unconscionable initiation fee and unfairly give Genworth a preview of an employee's evidence, we nonetheless conclude the Resolve guidelines are unconscionable and therefore unenforceable. As a contract of adhesion that Baxter was forced to accept as a condition of her continued employment, Resolve is procedurally unconscionable. And, the provisions in Resolve that prohibit contacting other employees about a claim, restrict formal discovery, shorten limitations periods, and effectively limit an employee's right to seek administrative remedies before an arbitration is conducted provide more than ample grounds to support a conclusion that Resolve is substantively unconscionable.
IV. Severance
As a final matter, Genworth contends the trial court abused its discretion in declining to sever any provisions of the
In Armendariz , the Supreme Court concluded the arbitration agreement at issue there could not be enforced because it was "permeated by an unlawful purpose" and could not be saved by merely removing or restricting its unconscionable provisions. ( Armendariz , supra , 24 Cal.4th at pp. 124-125,
"First, the arbitration agreement contains more than one unlawful provision .... Such multiple defects indicate a systematic effort to impose
"Second, ... there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement." ( Armendariz , supra , 24 Cal.4th at pp. 124-125,
DISPOSITION
The order denying Genworth's motion to compel arbitration is affirmed. Respondent shall be entitled to recover its costs on appeal.
We concur:
Siggins, J.
Jenkins, J.
Notes
We will refer to Genworth and AssetMark collectively as Genworth unless the context requires further specificity.
"Public rights are designed to protect the public interest, not just the individual, and therefore cannot be contravened by private agreement." (Fitz, supra,
The California Supreme Court has emphasized that, although some courts have used the phrase "shock the conscience" to describe the degree of one-sidedness required to establish substantive unconscionability, "an examination of the case law does not indicate that 'shock the conscience' is a different standard in practice than other formulations or that it is the one true, authoritative standard for substantive unconscionability, exclusive of all others." (Sonic-Calabasas A, Inc. v. Moreno, supra,
At oral argument on appeal, counsel for Genworth offered an additional justification for the prohibition. Counsel stated it would be disruptive to the workplace to allow an employee to question other employees about a dispute or claim. We are not persuaded this rationale justifies the prohibition, particularly in light of public policy concerns discussed below. Maintaining order and limiting distractions in the workplace is undoubtedly a legitimate goal. But the prohibition against communicating with coworkers is not narrowly tailored to achieve that purpose. Indeed, it applies even outside the workplace.
We acknowledge the question of whether a particular provision is substantively unconscionable is not always answered with an unequivocal yes or no. In the case of the Resolve program's default discovery limitations, the provision falls somewhere on the unconscionable side of the spectrum between a valid, enforceable provision and one that is unequivocally unconscionable. But even if we were to conclude that this particular provision is not substantively unconscionable, our disposition would remain the same in light of the provisions other than this one that are also substantively unconscionable.
Wholly apart from concerns about statutes of limitation, Baxter complains about the internal deadlines she must adhere to at each level of the Resolve program after a claim is initiated. She contends the short deadlines creates traps for the unwary. We are aware of no authority supporting her contention that internal deadlines within an alternative dispute resolution procedure are necessarily unconscionable. The Resolve guidelines clarify that the various internal deadlines may be excused for good cause and are distinct from statutes of limitation in that they are not a jurisdictional bar to proceeding with a claim. Accordingly, we are not convinced the various internal deadlines in Resolve are substantively unconscionable, except to the extent they may have the effect in certain cases of requiring an aggrieved party to seek formal arbitration well before the applicable statute of limitations to file suit has run.
An employee may choose to waive a FEHA investigation and ask for an immediate right-to-sue letter. (Ellis, supra,
The quoted language appears in a version of Resolve that was updated in 2011.