Opinion
E065660
07-11-2017
JOSEPH ASHCRAFT et al., Plaintiffs and Respondents, v. CHALLENGER SHEET METAL, INC., Defendant and Appellant.
Finch, Thornton & Baird, Chad T. Wishchuk and Kathleen A. Donahue for Defendant and Appellant. Marchetti Law and Frank E. Marchetti for Plaintiffs and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. RIC1514047) OPINION APPEAL from the Superior Court of Riverside County. Angel M. Bermudez, Judge. Reversed. Finch, Thornton & Baird, Chad T. Wishchuk and Kathleen A. Donahue for Defendant and Appellant. Marchetti Law and Frank E. Marchetti for Plaintiffs and Respondents.
Joseph Ashcraft and Jacob Sharp brought a wage and hour suit against their employer, Challenger Sheet Metal, Inc. (Company). The trial court denied Company's motion to compel arbitration. Company contends the trial court erred because (1) the arbitration agreement was effective through all periods of Ashcraft's and Sharp's employment; (2) the arbitration agreement does not contain a condition precedent; (3) the arbitration agreement is not unconscionable; and (4) the arbitrator should decide the enforceability of the arbitration agreement. We reverse the judgment.
FACTUAL AND PROCEDURAL HISTORY
A. ARBITRATION AGREEMENT
Ashcraft and Sharp (collectively, Employees) signed identical form arbitration agreements (the Agreement), with the standard differences in names, wages, and dates. There are two relevant sections of the Agreement.
"Section 1" of the Agreement provides, in relevant part, "It is agreed and understood that future changes in the Employee's job classification and/or compensation will not revise or modify this Agreement in any way. This Agreement will remain in effect throughout the period of the Employee's employment by Company."
"Section 4" of the Agreement provides, in relevant part, "Employee and Company agree that in the event Employee's employment is terminated (either by Company or the Employee), any dispute that arises between Employee and Company relating to such termination of employment or any other dispute that arises during employment concerning, without limitation, any claim(s) based on common law, any federal or state statute, any statute or provision relating to employment discrimination and/or employment rights, any wage and hour claims, the federal or any state constitution and/or any public policy will be determined by arbitration and not by a lawsuit or resort to court process. In addition, Employee and Company agree that a neutral arbitrator shall have exclusive authority to decide any disputes over interpretation of this Agreement, including its enforceability, based on unconscionability, public policy, or other grounds. Arbitration of any contractual dispute, including claims based on breach of the at-will employment, any express or implied agreement and/or any covenant of good faith and fair dealing, must be properly initiated within one hundred and eighty (180) days of termination of employment or, if during employment, the date the claim arises. Arbitration of any dispute based on any federal or state statute, any statute or provision relating to employment discrimination or employment rights, wage and hour claims, the federal or any state constitution and/or any public policy must be properly initiated within one (1) year of termination of employment or, if during employment, the date the dispute arises."
B. COMPLAINT
In November 2015, Employees brought six causes of action against Company: (1) failure to pay prevailing wages; (2) withholding of unlawful deductions; (3) waiting time penalties; (4) failure to provide accurate wage statements; (5) withholding sick pay; (6) unlawful business practices. Employees alleged Company is a California sheet metal contractor that performs construction work. Employees are currently employed by Company.
C. MOTION
Company moved to compel arbitration. Company asserted Employees signed the Agreement, which requires them to submit to arbitration. Company underlined the language in "Section 4" of the Agreement that provides, "or any other dispute that arises during employment concerning, without limitation, any claim(s) based on common law, any federal or state statute, any statute or provision relating to employment discrimination and/or employment rights, any wage and hour claims, the federal or any state constitution and/or any public policy will be determined by arbitration and not by a lawsuit or resort to court process."
Company asserted public policy favored arbitration, and that the burden was on the party opposing arbitration to prove an arbitration clause cannot be interpreted as requiring arbitration. Company attached copies of the Agreement, signed by Ashcraft and Sharp, to the motion, as well as a declaration by attorney Elizabeth Kerr. Kerr declared she was assisting lead counsel for Company. Kerr detailed the time she spent working on the motion to compel arbitration.
D. OPPOSITION
Employees opposed the motion. In the "Facts" section of the opposition, Employees asserted Ashcraft began working for Company in 2010, and Sharp was hired in 2011. When Employees were hired, they were not presented with arbitration agreements. On several occasions after Employees were initially hired, Company laid off Employees because no work was available. When work was again available, Company rehired Employees. Employees asserted that each rehiring "involved a new negotiation of terms and the formation of a new employment agreement."
In the opposition, Employees "acknowledge[d] that they signed the agreements attached to Defendant's Motion, which Ashcraft signed on July 16, 2012 and Sharp signed on June 25, 2012." Employees asserted they signed the Agreement while working at a job site. Employees were approached by the field supervisor/project manager (the Field Supervisor) who told them signing the Agreement was a condition of retaining their employment. The Field Supervisor did not permit Employees to read the Agreement "and told them to just sign it and get back to work." Employees were not given copies of the Agreement.
Employees were laid-off in the summer of 2013. They were rehired several months later. Employees were laid-off and rehired at least two additional times before filing their lawsuit. After being laid-off in the summer of 2013, each time Employees were rehired, they were not presented with arbitration agreements.
Employees presented several reasons why they were not required to arbitrate. First, Employees contended the condition precedent of termination had not occurred because Employees brought their lawsuit while currently employed by Company. Employees quoted the language in "Section 4" of the Agreement, "in the event Employee's employment is terminated." Employees asserted their employment had to be terminated at the time they filed their lawsuit in order to be compelled to participate in arbitration.
Second, Employees asserted the Agreement did not apply after Employees were rehired in 2013 because each new period of employment involved new terms and they were not presented with arbitration agreements when they were rehired in 2013 and thereafter. Third, Employees contended the Agreement is procedurally and substantively unconscionable.
E. REPLY
Company replied to Employee's opposition. First, Company asserted an arbitrator must determine the enforceability of the Agreement. Second, Company contended there was no condition precedent for compelling arbitration. Company underlined the language in "Section 4" that reflects "or any other dispute that arises during employment." (Boldface and underline omitted.) Company asserted that language meant all disputes were subject to arbitration, not just the disputes arising after termination.
Third, Company asserted the Agreement applied to all periods of employment. Company contended new negotiations did not occur when Employees were rehired. Fourth, Company contended "the contract as a whole was not an adhesion contract," and if there were unconscionable terms, then they could be severed. No evidence was attached to the reply.
F. RULING
The parties did not request oral argument on the motion. The trial court found the Agreement was signed in 2012, then Employees were terminated and rehired in 2013. The court determined Employee's "rehiring involved new terms and conditions and a new arbitration agreement was NOT signed." The court found, "The dispute between the parties regards the post-2013 hiring period."
The court concluded, "Nothing in the agreement indicates that it is applicable for a period of time beyond the initial employment period. Second, nothing indicates that the prior agreement was reincorporated into the new employment period."
Next, the court wrote, "Assuming arguendo that the agreement was in place, the agreement required a non-present condition precedent. The agreement provides that the parties are to arbitrate upon termination. Section 4 of the Agreement. Defendant argues that another clause provides that 'you are agreeing to have any issue related or arising from this agreement' to be arbitrated. This argument fails for a few reasons. First, the Defendant is the drafter. If there is any conflict arising from the language, the ambiguity will be read against it. Second, the specific controls the general. The specific clause is Section 4 and it requires 'termination,' and issues therefrom. Finally, termination remains a condition precedent. [¶] Last, the court does not address the issue whether the agreement is unconscionable." The trial court denied Company's motion to compel arbitration.
DISCUSSION
A. PROCEDURE
1. BURDEN
"A petition to compel arbitration is a suit in equity seeking specific performance of an arbitration agreement. [Citation.] [Code of Civil Procedure] [s]ection 1281.2 provides that 'on petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that . . . [g]rounds exist for the revocation of the agreement.'
"Section 1281.2 establishes 'a summary proceeding' for resolving such petitions to compel arbitration. [Citation.] . . . [O]ur Supreme Court explained the requisite procedure: '[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement . . . that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.' . . . [I]n these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination.'" (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1057-1058.)
2. CONTRACT INTERPRETATION
"The rules governing the role of the court in interpreting a written instrument are well established. The interpretation of a contract is a judicial function. [Citation.] In engaging in this function, the trial court 'give[s] effect to the mutual intention of the parties as it existed' at the time the contract was executed. [Citation.] Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract's terms.
"The court generally may not consider extrinsic evidence of any prior agreement or contemporaneous oral agreement to vary or contradict the clear and unambiguous terms of a written, integrated contract. [Citations.] Extrinsic evidence is admissible, however, to interpret an agreement when a material term is ambiguous.
"When the meaning of the words used in a contract is disputed, the trial court engages in a three-step process. First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. [Citations.] If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract. [Citation.] When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law. [Citations.] This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence [citation] or that extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation. [Citations.] If, however, there is a conflict in the extrinsic evidence, the factual conflict is to be resolved by the jury." (Wolf v. Walt Disney Pictures and Television (2008) 162 Cal.App.4th 1107, 1126-1127.)
3. STANDARD OF REVIEW
We apply the de novo standard of review. (Wolf, supra, 162 Cal.App.4th at p. 1134, citing Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 866.) The rules of construction generally applicable to contracts apply when interpreting arbitration agreements. "[W]e interpret the words in their ordinary sense, according to the plain meaning a layperson would attach to them. [Citations.] "'"The purpose of the law of contracts is to protect the reasonable expectations of the parties."'" (Gravillis v. Coldwell Bander Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 774-775.)
B. EFFECTIVE PERIOD
Company contends the trial court erred by concluding the Agreement only applied to the employment period of summer of 2012 (when the Agreement was signed) to the summer of 2013 (when Employees' employment was terminated).
"Section 1" of the Agreement provides, "This Agreement will remain in effect throughout the period of the Employee's employment by Company." The issue is whether "the period" refers to (1) the time from the summer of 2012 to the summer of 2013; or (2) to all times after the summer of 2012 when Employees were employed by Company.
"[T]he period" is vague and could reasonably be interpreted in both manners. As to the term having a limited meaning (2012 to 2013), "the period," uses the definite article "the," creating a limited or defined sense of time—something that will end. If "the period" were intended to be ongoing, then it would say "the period(s)" or "any employment with the Company." On the other hand, "the period" could be interpreted as having an ongoing nature (everything post-summer of 2012) because there is no explicitly defined limit, such as "until termination," or a more descriptive word such as "this period." In sum, "the period" is vague and can reasonably be understood in the manners suggested by both Employees and Company.
Next, we turn to the evidence to aid us in interpreting the term. Ashcraft declared that he was laid off when Company did not have work for him. He further declared that each time he was rehired he and Company "would negotiate terms including the amount that I would be paid and the job or jobs that [Company] wanted me to work on, and these negotiations took place telephonically." Ashcraft confirmed later in the declaration that "each new period of employment was based on a verbal agreement." Sharp's declaration is nearly identical to Ashcraft's declaration, with the expected name and date changes.
It can reasonably be inferred from the foregoing evidence that new employment paperwork was not completed upon each rehire because the rehires were telephonic and based upon verbal agreements. Therefore, the employment paperwork Employees' previously completed was expected to remain effective through the rehire. Because the period of employment was ongoing as it relates to paperwork, we conclude "the period" refers to all of Employees' post-summer 2012 employment with Company. Therefore, the Agreement was effective when Employees filed their lawsuit.
C. CONDITION PRECEDENT
Company contends the trial court erred by concluding termination was a condition precedent to mandatory arbitration.
"Section 4" provides, in relevant part, "Employee and Company agree that in the event Employee's employment is terminated (either by Company or the Employee), any dispute that arises between Employee and Company relating to such termination of employment or any other dispute that arises during employment . . . will be determined by arbitration . . . . Arbitration of any dispute . . . must be properly initiated within one (1) year of termination of employment or, if during employment, the date the dispute arises. . . . [¶] . . . [¶] Such arbitration shall be the exclusive forum for any dispute between Employee and Company related to such termination of employment or other dispute set forth above."
"Provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction." (Berry v. Kettle (1967) 256 Cal.App.2d 252, 254.)
"Section 4" begins with the phrase "in the event Employee's employment is terminated." That phrase could appear to create a condition precedent, because one could read "Section 4" with the thought that everything in the Section is dependent upon termination occurring. However, if one reads "Section 4" several times, it becomes more difficult to understand termination as a condition precedent.
The first sentence of "Section 4" reads, "Employee and Company agree that in the event Employee's employment is terminated (either by Company or the Employee), any dispute that arises between Employee and Company relating to such termination of employment or any other dispute that arises during employment . . . ." (Italics added.) Thus, "Section 4" concerns "any dispute that arises . . . relating to . . . termination . . . or any other dispute that arises during employment."
If termination were a condition precedent, then the Agreement would likely be phrased in the past tense. For example, "Any dispute that arose relating to termination or any other dispute that arose during employment." The present tense wording of the phrase "arises during employment," causes the section to read as though a dispute with a currently employed employee could be subject to arbitration.
Next, "Section 4" reads, "Arbitration of any dispute . . . must be properly initiated within one (1) year of termination of employment or, if during employment, the date the dispute arises . . . ." If termination were a condition precedent prior to seeking arbitration, then the foregoing quoted sentence would be problematic because there would be no reason to have two different timelines—every dispute would have to wait until after termination, and thus every dispute would need to proceed on the post-termination one-year timeline. Because there are two timelines, it appears termination cannot be a condition precedent.
Further, "Section 4" provides, "Such arbitration shall be the exclusive forum for any dispute between Employee and Company related to such termination of employment or other dispute set forth above." This sentence contemplates disputes related to matters other than termination as evidenced by the language "or other dispute set forth above." Thus, it appears the parties contemplated a more global application of "Section 4," not one that was limited to post-termination issues.
In sum, multiple portions of "Section 4" indicate a condition precedent was not intended by the parties. Therefore, we conclude termination of employment is not a condition precedent. (Berry v. Kettle, supra, 256 Cal.App.2d at p. 254 ["Provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction"].)
D. UNCONSCIONABILITY
1. CONTENTION
Company contends the Agreement is not unconscionable. (Civ. Code, § 1670.5.)
2. BURDEN AND STANDARD OF REVIEW
"Since unconscionability is a contract defense, the party opposing arbitration bears the burden of proving that an arbitration provision is unenforceable on that ground. [Citation.] Unconscionability is ultimately a question of law, which we review de novo when no meaningful factual disputes exist as to the evidence." (Htay Htay Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 708.)
Although argued below, the trial court did not address the issue of unconscionability. For the sake of judicial economy, we will examine the issue because the standard of review is de novo. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1212 [address de novo issues in the first instance for the sake of judicial economy].)
3. LAW OF UNCONSCIONABILITY
"Unconscionability has a procedural and a substantive element; the procedural element focuses on the existence of oppression or surprise and the substantive element focuses on overly harsh or one-sided results. [Citations.] To be unenforceable, a contract must be both procedurally and substantively unconscionable, but the elements need not be present in the same degree. [Citation.] The analysis employs a sliding scale: 'the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.'" (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 (Gatton).)
4. PROCEDURAL UNCONSCIONABILITY
"The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citations.] The element focuses on oppression or surprise. [Citation.] 'Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.' [Citation.] Surprise is defined as '"the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms."'" (Gatton, supra, 152 Cal.App.4th at p. 581.)
Procedural unconscionability is typically satisfied by a contract of adhesion. (Gatton, supra, 152 Cal.App.4th at p. 582.) "A contract of adhesion is '"'imposed and drafted by the party of superior bargaining strength'"' and '"'relegates to the subscribing party only the opportunity to adhere to the contract or reject it.'"' (Ibid.)
Ashcraft declared he was at work on a job site when the Field Supervisor placed the Agreement in front of Ashcraft. The Field Supervisor told Ashcraft that Ashcraft "had to sign it then and there as a requirement to keep [his] employment." The Field Supervisor did not give Ashcraft time to read the Agreement, and said "just sign it and get back to work." Ashcraft believed he "had no[]choice." Ashcraft signed the Agreement, without reading it. Ashcraft was not given a copy of the Agreement. Sharp's declaration on this topic is identical to Ashcraft's declaration.
The Agreement was drafted by Company and presented to Employees as a "take it or leave it" option. There were no negotiations over the terms of the Agreement. Employees did not have a meaningful choice—either they signed the Agreement or their employment would be terminated. Employees declared that they were repeatedly laid-off from Company, and then rehired by Company. It can be inferred from this evidence that Employees were not highly sought after by other companies—Employees depended on Company for employment. (See Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 243 [highly sought after employees have more bargaining strength].) Due to the inequality in bargaining power, the lack of negotiation, and absence of meaningful choice, we conclude the Agreement is procedurally unconscionable.
Company contends the Agreement is not procedurally unconscionable because in bold, all capitalized printing, above the signature line, the Agreement reads: "CAUTION: IT IS IMPORTANT THAT YOU THOROUGHLY READ THE AGREEMENT BEFORE YOU SIGN IT. YOU AGREE NOT TO SIGN THIS AGREEMENT BEFORE YOU HAVE READ IT (EVEN IF OTHERWISE ADVISED)." Company asserts that because Employees were advised to read the Agreement, it is not procedurally unconscionable. Company's argument is not persuasive because the evidence reflects Employees were not given an opportunity to read the Agreement prior to signing it. Therefore, Employees did not know of the warning in the Agreement.
5. SUBSTANTIVE UNCONSCIONABILITY
a) The Agreement
"Section 4" of the Agreement provides, in relevant part, "Employee and Company agree that . . . any other dispute that arises during employment concerning . . . any statute or provision relating to employment discrimination . . . will be determined by arbitration and not by a lawsuit or resort to court process."
"Section 4" further provides, "Such arbitration shall be the exclusive forum for any dispute between Employee and Company related to such termination of employment or other dispute set forth above. The parties shall first attempt to agree upon the selection of an arbitrator. A list of arbitrators may be requested by either the Employee or the Company from the American Arbitration Association ('AAA') or other arbitration tribunal (as long as there is no charge for such lists), but the arbitration shall not be conducted by AAA or other arbitral tribunal unless agreed to by both the Employee and the Company. If the Employee and the Company are unable to mutually agree to an arbitrator, they shall apply to a court of competent jurisdiction for the appointment of an arbitrator. The arbitrator chosen or appointed shall have discretion to conduct the arbitration under procedures authorized by law. It is agreed that the arbitrator's decision will be final and binding on the Employee and Company."
b) Substantive Unconscionability Law
"The substantive element looks to the actual terms of the parties' agreement to 'ensure[] that contracts, particularly contracts of adhesion, do not impose terms that have been variously described as "'"overly harsh"'" [citation], "'unduly oppressive'" [citation], "'so one-sided as to "shock the conscience"'" [citation], or "unfairly one-sided[.]"' [Citation.] These formulations 'all mean the same thing.' [Citation.] Substantive unconscionability '"is concerned not with 'a simple old-fashioned bad bargain' [citation], but with terms that are 'unreasonably favorable to the more powerful party[.]'"'" (Magno v. College Network, Inc. (2016) 1 Cal.App.5th 277, 288.)
c) Analysis
The Agreement fails to identify (1) the location for the arbitration (e.g., California, Wisconsin, Brazil); (2) what laws or rules will be used in the arbitration (e.g., California Rules of Civil Procedure, AAA rules); and (3) who will pay the costs of arbitration (e.g., the prevailing party, the plaintiff, shared costs). The Agreement essentially provides that arbitration will occur, but omits most details.
The Agreement is not substantively unconscionable because there is little substance to the Agreement. Both Employees and Company agreed to submit their disputes to arbitration, and neither has much clarity as to how or where or under what conditions that arbitration will take place. To the extent the Agreement is vague, it is vague for both parties. Neither party has an advantage in the Agreement's lack of clarity.
One point on which the Agreement does have some substance and clarity is the timeline for bringing a dispute. Contract disputes must be brought within 180 days of termination or, if during employment, 180 days from the date the claim arises. Statutory disputes, discrimination claims, wage and hour claims, constitutional claims, and public policy disputes must be brought within one year of termination or, if during employment, one year from the date the claim arises. Another provision applies specifically to Company, and provides for a 180-day deadline for Company to bring claims for theft, misappropriation of trade secrets, and breach of a confidentiality agreement or policy.
There is nothing in the timelines giving an advantage to Company. Company is subject to the same limitations as Employees. To the extent the 180-day timeline is harsh, it is suffered by both Employees and Company. Accordingly, because Company has no advantage, the Agreement is not substantively unconscionable.
d) Employees' Argument
Employees contend the Agreement is unconscionable because (1) it does not identify what law is applicable to the arbitration; (2) it significantly shortens the statute of limitations; (3) it does not provide for judicial review of the arbitrator's decision; and (4) it does not provide for discovery procedures. Employees rely on Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz), to support their argument.
In Armendariz, our Supreme Court concluded there are five minimum requirements that must be included in an arbitration agreement in order for the agreement to be lawful, when the arbitration agreement concerns disputes over statutory civil rights: "it '(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum.'" (Armendariz, supra, 24 Cal.4th at pp. 90-91, 102.)
It is possible the holding concerning the five minimum requirements has been abrogated by the United States Supreme Court in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 343-346, 352. (Ruhe v. Masimo Corp. 2011 U.S. Dist. LEXIS 104811, *4 [Cent. Dist. Cal.].)
After the high court set forth the minimum requirements for mandatory employment arbitration agreements that concern disputes over civil rights, it examined the issue of unconscionability. (Armendariz, supra, 24 Cal.4th at p. 113.) In the unconscionability analysis, the high court examined whether the arbitration agreement was "substantively unconscionable because it requires only employees to arbitrate their wrongful termination claims against the employer, but does not require the employer to arbitrate claims it may have against the employees." (Id. At pp. 115-116.) The court concluded the arbitration agreement was "unfairly one-sided" because only employees had to submit their claims to arbitration. (Id. at p. 117.) Due to the lack of mutuality, the arbitration agreement was substantively unconscionable. (Id. at p. 118.)
Employees are asserting the failure to include the five minimum requirements in the Agreement renders the Agreement substantively unconscionable. To the extent the Agreement fails to include the five minimum requirements, it may be invalid or unenforceable, but it is not unconscionable because, as explained ante, it is not a one-sided agreement. (See Armendariz, supra, 24 Cal.4th 83, 124 [separately describing an unlawful provision and an unconscionable clause]; see also Nyulassy v. Lockeed Martin Corp. (2004) 120 Cal.App.4th 1267, 1279-1280 [five requirements are separate from unconscionability].)
An unlawful agreement does not equate with an unconscionable agreement. As explained ante, there is little substance to the Agreement other than an agreement to arbitrate and an agreement concerning timelines for bringing arbitration claims. The substance of the Agreement does not provide an advantage to Company. The omitted Armendariz requirements, to the extent they apply, are a risk for both parties. For example, both sides could experience procedural discovery problems due to the omission of discovery rules. Therefore, the Agreement is not one-sided and is not unconscionable.
The five Armendariz requirements, to the extent the requirements have not been abrogated, would presumably apply to the Agreement because the Agreement requires arbitration for discrimination claims, which would include civil rights claims such as those arising under the Fair Employment and Housing Act (FEHA). The five Armendariz requirements are to be included when arbitration is required for disputes related to "statutory civil rights in the workplace," such as FEHA claims. (Armendariz, supra, 24 Cal.4th 83, 90, 102.) In Employees' complaint, they primarily allege wage and hour violations—not discrimination. We do not decide whether the omission of the Armendariz requirements is relevant to this matter. --------
6. SLIDING SCALE
As set forth ante, an unconscionability "analysis employs a sliding scale: 'the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.'" (Gatton, supra, 152 Cal.App.4th at p. 579.) While a strong showing on one side of the scale can overcome a weak showing on the other side of the scale, both procedural and substantive unconscionability must be present in order for a contract to be deemed unconscionable—the scale cannot be one-sided. (AT&T Mobility LLC v. Concepcion, supra, 563 U.S. at p. 340; Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 247; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.)
The Agreement is procedurally unconscionable; however, it lacks substantive unconscionability. Because there is no substantive unconscionability, the Agreement is not unconscionable. (See Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 246 [showing of procedural unconscionability, but no substantive unconscionability, means the contract is not unconscionable]; see also Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825, 845 [same].)
E. DELEGATION CLAUSE
1. FACTS
The Agreement provides, "Notice: By signing this Agreement, you are agreeing to have any issue related or arising from this Agreement, including the enforceability of this Agreement, to be determined by neutral arbitration. You are agreeing that a neutral arbitrator has the exclusive authority to determine whether this Agreement or any specific clause in this Agreement is unconscionable or unenforceable on public policy or other grounds." (Caps and boldface omitted.)
2. ANALYSIS
Company contends any issue concerning enforceability of the Agreement should be decided by the arbitrator.
"Delegation clauses have the potential to create problems of circularity. For example, suppose an arbitration agreement delegates the issue of enforceability to the arbitrator. If the arbitrator concludes that the arbitration agreement is, in fact, not enforceable, this would mean that the entire agreement, including the delegation clause, is unenforceable—a finding that would undermine the arbitrator's jurisdiction to make that finding in the first place. For this reason, courts have treated the delegation clause as a separate agreement to arbitrate solely the issues of enforceability. In other words, courts have separately enforced an enforceable delegation clause; thus, it has been held that whether the arbitration agreement as a whole is ultimately held to be unenforceable will have no bearing on the enforcement of the delegation clause itself.
"For this reason, when a party is claiming that an arbitration agreement is unenforceable, it is important to determine whether the party is making a specific challenge to the enforceability of the delegation clause or is simply arguing that the agreement as a whole is unenforceable. If the party's challenge is directed to the agreement as a whole—even if it applies equally to the delegation clause the delegation clause is severed out and enforced; thus, the arbitrator, not the court, will determine whether the agreement is enforceable. In contrast, if the party is making a specific challenge to the delegation clause, the court must determine whether the delegation clause itself may be enforced (and can only delegate the general issue of enforceability to the arbitrator if it first determines the delegation clause is enforceable)." (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1560.)
Employees challenged the Agreement generally; they did not specifically challenge the delegation clause. Therefore, the trial court erred by determining the enforceability of the Agreement. We understand that we too have analyzed the enforceability of the Agreement; however, we did so because the trial court's judgment was already in place and Company raised the foregoing issues concerning enforceability. (See Code Civ. Proc., § 906 [appellate court may review trial court's ruling].)
DISPOSITION
The judgment is reversed. The parties are to bear their own costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
MILLER
J. We concur: RAMIREZ
P. J. FIELDS
J.