Judge Armen Tamzarian, Case Number: 23STCV23458, Date: 2024-01-19 Tentative Ruling

Judge: Armen Tamzarian, Case: 23STCV23458, Date: 2024-01-19 Tentative Ruling

Case Number: 23STCV23458 Hearing Date: January 19, 2024 Dept: 52

Defendants Gigi C’s Bikinis, LLC and Tina Caruso’s Motion to Compel Arbitration

Defendants Gigi C’s Bikinis, LLC and Tina Caruso move to compel arbitration of this action by plaintiff Monique Ocegueda. Plaintiff argues the parties’ arbitration agreement is unconscionable and therefore unenforceable.

Unconscionability requires both procedural and substantive unconscionability using a sliding scale. (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 185.) “Procedural unconscionability focuses on the elements of oppression and surprise.” (Id. at p. 177.) “Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results. (Ibid., internal quotes omitted.) “Generally, the burden is on the party opposing arbitration to show an arbitration agreement is unconscionable.” (Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308, 330.)

Procedural Unconscionability

Plaintiff shows some procedural unconscionability. Procedural unconscionability occurs when the stronger party drafts the contract and presents it to the weaker party on a ‘take it or leave it basis.’ ” (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393, disapproved on other grounds by Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237.) “ ‘Arbitration contracts imposed as a condition of employment are typically adhesive.’ ” (Davis v. Kozak (2020) 53 Cal.App.5th 897, 906.) “By itself, however, adhesion establishes only a ‘low’ degree of procedural unconscionability.” (Id. at p. 907.)

The parties’ arbitration agreement was an adhesion contract imposed as a condition of employment. Plaintiff does not show any other circumstances that make the agreement oppressive or surprising. Even if included among 70 pages of documents, the agreement is clearly labeled and in legible print. It plainly states the result of agreeing to its terms. In capital letters, it states, “Company and Employee understand that by using arbitration to resolve disputes, they are giving up any right(s) they may have to a judge or jury trial with regard to all issues concerning employment.” (Bottiani Decl., Ex. A, ¶ 2.)

Substantive Unconscionability

In arguing the arbitration agreement is substantively unconscionable, plaintiff relies in part on provisions in a separate confidentiality agreement. (Scalia Decl., Ex. 2.) An “Arbitration Agreement and [a] Confidentiality Agreement should be read together” when they ‘were executed on the same day” and “were both separate aspects of a single primary transaction—[plaintiff’s] hiring.” (Alberto v. Cambrian Homecare (2023) 91 Cal.App.5th 482, 490 (Alberto).) Defendant sent plaintiff both agreements and required her to sign them as a condition of employment. (Ocegueda Decl., ¶¶ 8-10.) As in Alberto, “the two agreements were part of a single transaction,” so “unconscionability in the Confidentiality Agreement is relevant in determining whether the parties’ agreement to arbitrate was unconscionable.” (Alberto, supra, at p. 491.)

Plaintiff argues the agreement is substantively unconscionable for four reasons.

1. Provision for Injunctive Relief to Enforce Confidentiality Agreement

First, plaintiff contends the agreement is not mutual because it requires arbitration of claims generally brought by employees but “allows Defendants direct access to the courts through the confidentiality agreement to seek an injunction.” (Opp., p. 9.) “An agreement may be unfairly one-sided if it compels arbitration of the claims more likely to be brought by the weaker party but exempts from arbitration the types of claims that are more likely to be brought by the stronger party.” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 724.) “[P]rovisions that allow employers to seek a preliminary injunction outside of arbitration for breach of a confidentiality agreement are not, by themselves, unconscionable, simply because they primarily benefit employers.” (Alberto, supra, 91 Cal.App.5th at p. 492.) “But additional provisions that waive the employer’s need to obtain a bond before seeking an injunction, waive the employer’s need to show irreparable harm, and require an employee to consent to an immediate injunction are unconscionable. They exceed the legitimate ‘margin of safety’ for the employer and are not mutual.” (Ibid.)

The parties’ confidentiality agreement provides, “Employee acknowledges and agrees that the business of the Company is highly competitive, and that violation of any of the covenants provided for in this Agreement would cause immediate, immeasurable, and irreparable harm, loss and damage to the Company not adequately compensable by a monetary award. Accordingly, the Employee agrees, without limiting any of the other remedies or damages available to the Company, that any violation of said covenants, or any of them, may be enjoined or restrained by any court of competent jurisdiction, and that any temporary restraining order or emergency, preliminary or final injunctions may be issued by any court of competent jurisdiction.” (Scalia Decl., Ex. 2, § 7.)

This provision is substantively unconscionable, though not to the same degree as the one in Alberto. There, “the Confidentiality Agreement required Alberto to consent to an ‘order of an immediate injunction, without bond, from any court of competent jurisdiction, enjoining and restraining’ Alberto from disclosing confidential or proprietary information.” (Alberto, supra, 91 Cal.App.5th at p. 492.) Here, the confidentiality agreement purports to waive the employer’s need to show irreparable harm in that it requires plaintiff to agree that a breach would “cause immediate, immeasurable, and irreparable harm.” (Scalia Decl., Ex. 2, § 7.) It does not, however, provide for an “immediate” injunction and does not waive the employer’s need to obtain a bond.

2. Attorney Fee Award to Party Who Successfully Compels Arbitration

Second, plaintiff argues the agreement is unconscionable because it permits the employer to recover attorney fees incurred in compelling arbitration. The agreement provides that, if either party files a lawsuit, an opposing party who “successfully compels the Suit-Filing Party to arbitration … shall be entitled to the reasonable attorneys’ fees incurred in enforcing this Agreement.” (Bottiani Decl., Ex. A, ¶ 16.)

This provision violates the FEHA because “a prevailing defendant in a FEHA action can recover attorney fees only if the action was frivolous, unreasonable, or groundless.” (Ramirez v. Charter Communications, Inc. (2022) 75 Cal.App.5th 365, 377, review granted June 1, 2022, S273802.) This provision “as written is unenforceable as being in violation of FEHA” and therefore must either be found unconscionable (id. at pp. 378, 380-382) or must be modified by “incorporating the FEHA attorney fee standard” (id. at p. 379 [disagreeing with that approach used in Patterson v. Superior Court (2021) 70 Cal.App.5th 473]). The court finds this provision is substantively unconscionable.

3. PAGA Waiver

Third, plaintiff argues the agreement’s “ban on ‘representative’ PAGA claims is unlawful.” (Opp., p. 10.) Plaintiff argues the following provision is unconscionable: “The Parties hereby waive any substantive or procedural rights they may have to participate or bring an action on a class, collective, or other similar basis in court, arbitration or otherwise. By signing this Agreement, I am agreeing to waive any substantive or procedural rights I may have to bring or participate in an action on a class or collective basis.” (Bottiani Decl., Ex. A, ¶ 9.)

This provision is not unconscionable. It does not purport to waive any right to bring PAGA claims. A PAGA action is a “representative” action, not a “class or collective” action. (Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 87 [“ ‘a representative action under PAGA is not a class action’ ”].) The arbitration agreement expressly provides that representative PAGA actions are not subject to arbitration. It states, “The Parties specifically agree that, except for representative claims arising under the California Private Attorneys General Act of 2004 (‘PAGA’) (Labor Code § 2698, et seq.), all claims under the California Labor Code … shall be subject to this Agreement.” (Bottiani Decl., Ex. A, ¶ 4.) It further provides, “Claims not covered by this Agreement [include] representative claims arising under the California Private Attorneys General Act of 2004 (PAGA).” (Id., ¶ 5.)

4. Confidentiality of “Personnel Information”

Finally, plaintiff argues the arbitration agreement is unconscionable because the confidentiality agreement prohibits employees from disclosing their wages. A “restriction on discussing wages” is substantively unconscionable. (Alberto, supra, 91 Cal.App.5th at p. 494.) Such a provision violates Labor Code section 232, which prohibits employers from requiring an employee to “refrain from disclosing the amount of his or her wages.” (Lab. Code, § 232(a).)

The parties’ confidentiality agreement does not restrict employees from discussing wages. Plaintiff relies on a provision defining “confidential information” to include “personnel information including the productivity and profitability (or lack thereof) of Company’s employees, agents, or independent contractors.” (Scalia Decl., Ex. 2, § I.C.7.) Plaintiff argues, “While the terms ‘personnel information’ and ‘productivity and profitability’ are not defined by the agreement, such broad language would restrain employees from even discussing their wages.” (Opp., p. 12.)

This provision does not prohibit employees from disclosing the amount of their wages. It limits disclosing “personnel information including the productivity and profitability” of employees. “Productivity” concerns the employees’ value to the company, regardless of how much the company pays them. “Profitability” does not refer to wages or pay of employees. Profit generally means “[t]he excess of revenues over expenditures in a business transaction.” (Black’s Law Dict. (11th ed. 2019).) Employees’ wages or salary are their income, not “profit.” The term “profitability” does not apply to employees working for hourly wages or annual salary. In contrast, in Alberto, “the Confidentiality Agreement treated ‘compensation and salary data and other employee information’ as a supposed ‘trade secret.’ ” (Alberto, supra, 91 Cal.App.5th at p. 493.)

Limiting disclosure of “personnel information including the productivity and profitability (or lack thereof) of Company’s employees, agents, or independent contractors” cannot reasonably be interpreted to prohibit an employee from disclosing the amount of his or her wages. Had the parties intended that result, the agreement would have used clear language like the term “compensation”, as it does in protecting “the financial status, compensation, or personal information of individuals who own the Company.” (Scalia Decl., Ex. 2, § 1.C.6.) This provision is not unconscionable.

Severability

The court exercises its discretion to sever the two substantively unconscionable provisions in the parties’ arbitration and confidentiality agreements. “In the context of severing unconscionable provisions from an arbitration agreement, ‘the strong legislative and judicial preference is to sever the offending term and enforce the balance of the agreement.’ ” (Alberto, supra, 91 Cal.App.5th at p. 495.) A court should not enforce an agreement “permeated by unconscionability.” (Ibid., internal quotes omitted.) “One factor weighing against severance is when ‘the arbitration agreement contains more than one unlawful provision.’ ” (Ibid.)

Here, the parties’ agreement has two unconscionable terms: (1) the confidentiality agreement’s provision permitting the employer to seek an injunction in court (Scalia Decl., Ex. 2, § 7), and (2) the arbitration agreement’s provision permitting the employer to recover attorney fees incurred in compelling arbitration (Bottiani Decl., Ex. A, ¶ 16). These two provisions can be “stri[cken] or restrict[ed] in order to remove the unconscionable taint from the agreement.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124-125.) The agreement is not permeated with unconscionability.

Disposition

Defendants Gigi C’s Bikinis, LLC and Tina Caruso’s motion to compel arbitration is granted.

The court hereby severs the following provisions of the parties’ agreements: (1) the entire Section 7 of the confidentiality agreement, titled “Remedies” (Scalia Decl., Ex. 2, § 7), and (2) the sentence, “If the Suit-Filing Party does not timely serve his/her/its agreement to arbitrate and the Enforcing Party successfully compels the Suit-Filing Party to arbitration, the Enforcing Party shall be entitled to the reasonable attorneys’ fees incurred in enforcing this Agreement” in paragraph 16 of the arbitration agreement. (Bottiani Decl., Ex. A, ¶ 16.)

Plaintiff Monique Ocegueda is ordered to arbitrate this action against defendants. The court hereby stays the entire action pending resolution of the arbitration proceeding.