Court Of Appeal Holding: One Bad Agreement Spoils The Bunch

Seyfarth Synopsis: The California Court of Appeal held that separate arbitration and confidentiality agreements that were executed simultaneously during initial hiring should be read together, such that the unconscionability of the confidentiality agreement rendered the arbitration agreement unenforceable. Alberto v. Cambrian Homecare.

Facts

When Jennifer Playu Alberto was hired by Cambrian Homecare in 2019, she executed a variety of agreements in conjunction with her orientation. Among the agreements were an arbitration agreement, a confidentiality agreement, and an addendum thereto.

The arbitration agreement called for the arbitration of any claims relating to Alberto’s employment. The agreement contained a full waiver of class, collective, or representative claims. 

The confidentiality agreement required Alberto to keep all employee information (e.g., names, addresses, and phone numbers) confidential. It stated that disclosure of such information would cause “irreparable injury,” entitling Cambrian to seek injunctive or equitable relief, without first posting a bond. Furthermore, the prevailing party in a dispute litigated under that agreement would be entitled to its “reasonable attorney’s fees and costs.”

On October 27, 2020, Alberto filed a complaint against Cambrian, alleging multiple wage-and-hour causes of action. After Alberto filed an amended complaint adding that she was an “aggrieved employee” under the Private Attorney General Act (“PAGA”), Cambrian filed a petition to compel arbitration.

The Trial Court Decision

The trial court denied Cambrian’s petition to compel arbitration. The trial court concluded that Cambrian’s failure to sign the arbitration agreement meant that the Parties had not formed an agreement to arbitrate since a provision of the agreement required that both Parties sign the agreement for it to be binding.

Additionally, the trial court concluded that the arbitration agreement was unconscionable and unenforceable. First, the trial court ruled that the agreement was procedurally unconscionable as a contract of adhesion. Second, the trial court concluded that the agreement was substantively unconscionable because: (1) the arbitration agreement had to be read with the confidentiality agreement and addendum—as they were part of the “same transaction”—and the latter agreements allowed Cambrian to obtain injunctive relief without the need to post a bond or demonstrate irreparable injury, even though Alberto’s claims against Cambrian were relegated to arbitration; (2) the confidentiality agreement’s prohibition on discussing salary information violated California law; and (3) the arbitration agreement’s wholesale waiver of PAGA claims was against public policy.

The Court of Appeal Decision

Cambrian conceded that part of the confidentiality agreement was substantively unconscionable, but argued that the unconscionability in the confidentiality agreement was irrelevant to the issue of the enforceability of the arbitration agreement. The court disagreed.

Relying on the general rule that several papers relating to the same subject matter, and executed as parts of substantially one transaction, are to be construed together as one contract, the Court of Appeal concluded that the arbitration agreement and the confidentiality agreement should be read together. The Court of Appeal observed that the agreements (1) were executed on the same day, (2) were separate aspects of a single primary transaction, and (3) governed how to resolve disputes arising between Alberto and Cambrian concerning Alberto’s employment. Consequently, the Court of Appeal further concluded that unconscionability in the confidentiality agreement affected whether the arbitration agreement was unconscionable.

The Court of Appeal determined that the injunction provisions of the confidentiality agreement lacked mutuality because “it required Alberto to consent to an ‘order of an immediate injunction, without bond … restraining’ Alberto from disclosing confidential or proprietary information. It allowed Cambrian to obtain attorney fees if it prevailed on such an injunction.” The Court of Appeal noted that these provisions, coupled with the fact that Cambrian was the only party that would benefit from the protection of its confidential information, rendered the confidentiality agreement non-mutual. 

The Court of Appeal also concluded the arbitration agreement was substantively unconscionable because the confidentiality agreement prohibited Alberto from discussing wages. Such provision was unconscionable because it was in direct contravention of the law, which prohibits an employer from requiring an employee from disclosing the amount of his or her wages as a condition of employment.

Additionally, the Court of Appeal held that blanket waivers of PAGA claims are unconscionable and, therefore, the provision of the arbitration agreement that required Alberto to waive her PAGA claims was unconscionable.

Lastly, the Court of Appeal held that the trial court was not required to sever the offending provisions and enforce the remainder of the arbitration agreement because it was reasonable for the trial court to conclude that unconscionability of the confidentiality agreement permeated the arbitration agreement as a whole.

What Alberto Means for Employers

It is extremely common for employers to have new employees execute multiple agreements upon hire. Alberto serves as a cautionary tale for employers, as they must ensure that all such agreements are enforceable, lest a court conclude that none of them are.

Secondarily, since the National Labor Relations Board has taken the position that overly broad confidentiality provisions may violate the National Labor Relations Act (see McLaren Macomb, 372 NLRB No. 58), employers should carefully review their confidentiality agreements.