Case Name:   Jefrey Gonzales vs. Sprouts Farmers Markets, LLC, et al.

Case No.:       1-13-CV-248781

 

This is a putative class and representative action by plaintiff Jefrey Gonzales (“Plaintiff”) on behalf of himself and similarly situated employees of defendant Sprouts Farmers Market, LLC (“Sprouts LLC”) and Sunflower Farmers Market, Inc. (“Sunflower Inc.”) for failure to pay for all vested vacation pay when Sprouts LLC purchased Sunflower Inc., failure to provide accurate wage statements, and failure to timely pay all final wages following separation of employment.

 

The original Complaint for (1) failure to provide accurate written wage statements; (2) failure to timely pay all final wages; and (3) unfair competition (Bus. & Prof. Code § 17200 et seq. or the “UCL”) was filed on July 1, 2013.  On November 21, 2013, Plaintiff filed a First Amended Complaint adding a fourth cause of action for civil penalties under California Labor Code section 2698 et seq. (the “Private Attorney General Act” or “PAGA”).

 

On May 20, 2014, Plaintiff filed a motion for leave to file a Second Amended Complaint (“SAC”) adding as defendants SFM, LLC (“SFM”), Sunflower Farmers Markets, LLC (“Sunflower LLC”), and SF Markets, LLC (“SF Markets”), and adding causes of action for meal and rest break violations.  On June 27, 2014, the Court granted the motion in part as to the addition of the new defendants, the addition of new meal and rest break causes of action, and the extension of the PAGA claim to Sunflower LLC and SF Markets (but not to SFM).  (Sprouts LLC, Sunflower Inc., SFM, Sunflower LLC, and SF Markets will hereinafter be referred to as “Defendants”.)

 

Plaintiff sues on behalf of nine subclasses: (1) Hourly Employee Class: all persons employed by Defendants in hourly or non-exempt positions in California during the relevant time period (four years prior to the filing of the action until judgment); (2) Meal Break Class: all hourly employees of Defendants in California who worked a shift in excess of five hours during the relevant time period; (3) Rest Break Class: all hourly employees of Defendants in California who worked a shift in excess of four hours during the relevant time period; (4) Vacation Pay Class: all persons employed by Farmers who earned paid vacation days, including but not limited to “Floating Holidays,” without receiving compensation when Sprouts purchased Sunflower; (5) Pay Card Class: all persons employed by Defendants in California who during the relevant time period were paid their wages with a pay card and were not paid all earned wages; (6) Regular Rate Class: all Meal Break Class members who, in a single pay-period, earned both (i) overtime or doubletime wages and (ii) purchased any discounted food, grocery item, or beverage in the same pay period during the relevant time period; (7) Wage Statement Penalties Class: all Hourly Class members employed by Defendants in California during the period beginning one year before the filing of this action and ending when final judgment is entered; (8) Waiting Time Penalties Class: all Vacation Pay Class members who separated from their employment with Defendants during the time period beginning three years before the filing of this action and ending when final judgment is entered, and any of Defendants’ employees who were not paid in accordance with Labor Code sections 201 and 202; and (9) UCL Class: all Pay Card Class members employed by Defendants in California during the relevant time period.

 

Defendants now move to compel arbitration of Plaintiffs’ individual claims and to stay this action in favor of arbitration.

 

Parties’ Arguments

 

Defendants submit the following facts and evidence in support of the motion to compel.  On May 29, 2012, Sprouts LLC acquired Sunflower Inc., which merged into and became Sunflower LLC, a subsidiary of Sprouts LLC.[1]  Plaintiff commenced employment with Sunflower LLC on or about June 13, 2012, shortly after the Sprouts-Sunflower merger.[2]  In late 2012, Sunflower Farmers Market stores were rebranded as Sprouts Farmers Market, and employees of Sunflower LLC (including Plaintiff) were transferred to SFM, which is registered in California as SF Markets and is a subsidiary of Sprouts LLC.[3]

 

In January 2013, Plaintiff was provided the Sprouts Mutual Binding Arbitration Agreement along with a Sprouts Team Member Handbook and California Team Member Handbook Supplement.[4]  “Plaintiff, like all employees who received the Arbitration Agreement, was given an opportunity to ask questions about the agreement before signing and acknowledging receipt and compliance with its terms.  Likewise, employees were told that they were responsible for reading and understanding the Arbitration Agreement, and that if they had any questions about it, they could contact their Store Manager, or Sprouts’ Human Resources Department, at any time.”[5]  On January 17, 2013, Plaintiff signed an Acknowledgment of Receipt of Team Member Handbook and Acknowledgment of Receipt of California Team Member Handbook Supplement.[6]

 

The Arbitration Agreement provides in relevant part:

 

The Company and Employee agree that, except as specifically provided in this Agreement, any claim, complaint, grievance, cause of action, and/or controversy (collectively referred to as a “Dispute”) that the Employee may have against the Company (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans) or that the Company may have against the Employee, that arises from, relates to, or has any relationship or connection whatsoever with the Employee’s employment with the Company, shall be submitted to and determined exclusively by final, binding, private arbitration pursuant to the terms of this Agreement, the Federal Arbitration Act, and all other applicable state and federal law.[7]

….

Arbitrable Claims shall include, but are not limited to, contract (express or implied) and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute, or regulation.  By way of example and not in limitation of the foregoing, Arbitrable Claims shall include (to the fullest extend permitted by law) … claims for unpaid wages (including claims relating to meal and rest breaks, claims for overtime compensation, claims pertaining to exempt misclassification, and claims for waiting time and other penalties) … .[8]

….

Except as otherwise required under applicable law, the Company and Employee expressly intend and agree that (1) class action, collective action, and representative action procedures shall not be asserted, nor will they apply, in any arbitration proceeding pursuant to this Agreement; (2) neither the Company nor the Employee will assert any class action, collective action, or representative action claims against the other in arbitration or otherwise; and (3) the Company and the Employee shall only submit their own respective, individual claims in arbitration and will not seek to represent the interests of any other person.[9]

….

Either the Employee or the Company may initiate the arbitration process by delivering a written request for arbitration to the other party within the time limits that would apply to the filing of a civil complaint (including administrative complaints or charges) in the Employee’s state of residence or federal district court, as applicable to the claim at issue.  A late request will be void.  All disputes involving Arbitrable Claims shall be decided by a single arbitrator pursuant to JAMS, Inc.’s Employment Arbitration Rules & Procedures.  A copy of the current JAMS Employment Arbitration Rules & Procedures is attached to this Agreement.  Additional information concerning these rules may be obtained from JAMS at www.jamsadr.com or from the Human Resources Support Office.  The arbitrator will have the authority to hear and rule on motions filed by the parties, including motions that are dispositive of the claims raised, as if the claims were filed in a court of law.  The arbitrator shall be selected by mutual agreement of the parties within thirty (30) days of the effective date of the notice initiating the arbitration.  If the parties cannot agree on an arbitrator, then the complaining party shall notify JAMS and request selection of an arbitrator in accordance with the JAMS Employment Arbitration Rules & Procedures.  The arbitrator shall have only such authority to award equitable relief, damages, costs, and fees as a court would have for a particular claim(s) asserted, including attorneys’ fees and costs, unless a party prevails on a statutory claim which affords the prevailing party attorneys’ fees and costs, in which case the arbitrator may make an award of fees and costs.  The arbitrator shall have exclusive authority to resolve all Arbitrable Claims, as well as determine the reasonableness of any fee or cost awarded by the arbitrator.

 

Resolution of the dispute shall be based solely upon the specific state or federal law(s) governing the claims and defenses as pleaded, and the arbitrator may not invoke any basis (including, but not limited to, notions of “just cause”) other than such controlling law.  Awards shall include the arbitrator’s written reasoned opinion.  Either party may be represented by counsel of their own choosing in all stages of the arbitration proceeding.[10]

 

Claims excluded from the scope of the Arbitration Agreement include charges filed with the National Labor Relations Board, Equal Employment Opportunity Commission, any state or local fair employment practices or civil rights agency or administrative or governmental agency with jurisdiction over employment-related claims.  Furthermore:

 

Claims also excluded under this Agreement include: (1) claims exclusively covered by any applicable state workers’ compensation law, (20 claims for unemployment benefits, (3) claims that were previously-filed and pending in a court of law on the Effective Date of this Agreement, and (4) claims for injunctive and/or equitable relief, including but not limited to those orders sought pursuant to (a) any state or local laws to restrain violence or harassment or threats of violence or harassment, (b) federal and state laws to stop or prevent unfair competition and/or the use or improper disclosure of trade secrets or confidential information, or (c) any written agreement between the Employee and the Company pertaining to confidential information, non-competition, or non-solicitation.[11]

 

Defendants submit that the Federal Arbitration Act (“FAA”) governs this Arbitration Agreement because the agreement states that all disputes shall be determined pursuant to the terms of the FAA, and there is no doubt that Sprouts is engaged in interstate commerce within the meaning of the FAA.  Defendants argue that Plaintiff agreed to arbitrate his claims on an individual basis, and the Arbitration Agreement encompasses all of the claims alleged in this action.

 

Defendants submit that during meet and confer, Plaintiff argued his fifth cause of action under the UCL claim is excluded from the Arbitration Agreement.  Defendants argue this is incorrect because the Arbitration Agreement only excludes claims to “stop or prevent unfair competition,” and Plaintiff does not sue for injunctive relief as a remedy for his UCL claim.

 

Defendants argue the Arbitration Agreement is not procedurally unconscionable because Plaintiff was given an opportunity to ask questions about the Arbitration Agreement before signing it, and it is a stand-alone, four-page document that clearly identifies the waiver of the right to bring a court action.  Defendants argue the Arbitration Agreement is not substantively unconscionable under the factors of Armendariz v. Foundation Health Psychare Services (2000) 24 Cal.4th 83 because it provides for a neutral arbitrator, adequate discovery, and a written decision, and it does not limit remedies or impose additional costs to the employee unique to arbitration.

 

Defendants argue that under Iskanian v. CLS Transportation Los Angeles, LLC, 2014 Cal. LEXIS 4318, and in light of AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, class waivers must be enforced according to their terms.  As for Plaintiff’s PAGA claim, Defendants argue that it should be severed pursuant to the Arbitration Agreement’s severability provision, and the Court should stay this action pending completion of the arbitration under California Code of Civil Procedure section 1281.4.

 

In opposition, Plaintiff argues that Defendants have not met their burden of showing that the FAA applies.  Plaintiff submits that he worked in California and reported to superiors in California, and his duties were limited to routine tasks such as displaying products or ordering products that did not directly affect interstate commerce sales.[12]  Plaintiff contends that where there is no applicable FAA preemption, California Labor Code section 229 provides that wage and hour claims cannot be arbitrated.

 

Plaintiff further argues the Arbitration Agreement is procedurally unconscionable because he was given no time to consider it when presented and was simply brought into the Human Resources office and instructed to read and sign the documents.  Plaintiff submits he was not informed that he was being presented with an arbitration agreement and was not informed that the agreement waived his rights to jury trial.

 

Plaintiff argues the Arbitration Agreement is substantively unconscionable because it requires Plaintiff to arbitrate claims against Sprouts and its owners, directors, officers, managers, employees or agents, but there is no requirement that these individuals arbitrate their claims against Plaintiff.  Plaintiff argues the Arbitration Agreement is silent on discovery and judicial review, and under the JAMS Arbitration Rules & Procedures, discovery is up to the arbitrator’s discretion with no assurances that Plaintiff would be entitled to adequate discovery.  Plaintiff argues severance is inappropriate because unconscionability permeates the entire agreement.

 

Plaintiff argues the Court should not enforce the Arbitration Agreement because it only references Sprouts LLC, not defendants Sunflower Inc., SFM, Sunflower LLC, and SF Markets.  Plaintiff argues that Defendants have not shown that the merged entities qualify as affiliates for purposes of California Corporations Code section 5031.

 

Plaintiff argues that under the Arbitration Agreement, he can proceed in court with his unfair competition claims and all claims that arose prior to the Arbitration Agreement’s “Effective Date” of January 1, 2013.

 

Legal Standards

 

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”  (Cal.Code Civ. Proc., § 1281.)

 

“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: [¶] (a) The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for the revocation of the agreement.”  (Cal. Code Civ. Proc., §  1281.2, subds. (a), (b).)

“[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. [Citation.]”  (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)

 

Agreement to Arbitrate/Scope of Agreement

 

Defendants demonstrate that an agreement to arbitrate exists, and that it encompasses most of the claims alleged in this action.  The Arbitration Agreement expressly defines arbitrable claims to include “all claims based on any federal, state, or local law, statute or regulation” and “claims for unpaid wages (including claims relating to meal and rest breaks … and claims for waiting time and other penalties)[.]”  This encompasses Plaintiff’s first cause of action for failure to provide meal periods, second cause of action for failure to provide rest periods, third cause of action for failure to provide accurate written wages statements, fourth cause of action for failure to timely pay final wages, and sixth cause of action for civil penalties.  (But see discussion below regarding the unenforceability of PAGA waivers.)

 

Plaintiff argues the Arbitration Agreement does not apply to entities other than Sprouts LLC, such as the other defendants Sunflower Inc., SFM, Sunflower LLC and SF Markets, because these latter defendants are not signatories to the agreement.  By its terms, the Arbitration Agreement applies to any disputes between the Employee and “the Company (and its … affiliates…)[.]”[13]  Defendants submit that “affiliate” is defined as “[a] corporation that is related to another corporation by shareholders or other means of control; a subsidiary, parent, or sibling corporation.”[14]  Defendants demonstrate that Sunflower Inc. merged into Sunflower LLC, a subsidiary of Sprouts LLC, and that SFM (registered in California as SF Markets) is also a subsidiary of Sprouts LLC.[15]  Thus, Sunflower Inc., SFM, Sunflower LLC and SF Markets are “affiliates” of Sprouts LLC for purposes of the Arbitration Agreement.

 

Plaintiff argues that under the Arbitration Agreement’s “Effective Date” provision, any claims arising prior to the Effective Date are not subject to the terms of the Arbitration Agreement.  This provision states that the Arbitration Agreement “shall be effective as of January 1, 2013 or the date upon which it was presented to the Employee, whichever is later. …  Only Arbitrable Claims reported to the Company on or after the Effective Date shall be subject to this Agreement without the express consent of both the Company and the Employee.”[16]  Although this provision is not artfully worded, it is reasonably read as exempting claims that were reported to Defendants prior to the Effective Date.  This interpretation is consistent with the section on “Excluded Claims” which specifically references the “Effective Date” of the Arbitration Agreement:  “Claims also excluded under this Agreement include … claims that were previously-filed and pending in a court of law on the Effective Date of this Agreement[.]”[17]  Otherwise, the Arbitration Agreement broadly encompasses “any claim, complaint, grievance, cause of action, and/or controversy…that the Employee may have against the Company…that arises from, relates to, or has any relationship or connection whatsoever with the Employee’s employment with the Company,”[18] and the Arbitration Agreement applies “at all times during Employee’s employment with the Company… .”[19]  As a whole, the Arbitration Agreement is sufficiently broad to cover claims arising out of employment-related conduct that occurred prior to the Effective Date, except as to those claims that were actually reported to Defendants or pending in court prior to the Effective Date.

 

Plaintiff argues that his UCL claim is not encompassed by the Arbitration Agreement.  This point is well-taken.  The Arbitration Agreement expressly excludes claims for equitable relief under state unfair competition laws.  Defendants argue that the Arbitration Agreement’s “Excluded Claims” provision only excludes claims to “stop or prevent unfair competition”, and here, Plaintiff does not seek an injunction.  This argument takes the “stop or prevent” phrase out of context and ignores the non-limiting language in which it appears.  The entire relevant portion of the exclusion provision states that “[c]laims also excluded under this Agreement include … claims for injunctive and/or other equitable relief, including but not limited to those orders sought pursuant to … federal or state laws to stop or prevent unfair competition … .”[20]  Thus, the Arbitration Agreement’s exclusion of claims for equitable relief under unfair competition laws is not limited to injunctive relief or orders to stop or prevent unfair competition.  Here, Plaintiff’s fifth cause of action under the UCL seeks declaratory relief and restitution of all monies rightfully belonging to them that Defendants did not pay or otherwise retained by means of unlawful and unfair business practices.[21]  Restitution is an equitable remedy.  (See Clark v. Superior Court (2009) 174 Cal.App.4th 82, 101.)  Thus, the Arbitration Agreement should be read to exclude Plaintiff’s claim for equitable relief under the UCL.  Defendant argues that doubts about the applicability of the Arbitration Agreement to the unfair competition claim should be resolved in favor of arbitration.  However, there is simply no doubt that the Arbitration Agreement expressly excludes claims for “equitable relief,” and that such claims are “not limited to” orders to “stop or prevent unfair competition” as Defendants contend.

 

Cal. Lab. Code, § 229 and FAA Preemption

 

“Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.”  (Cal. Lab. Code, § 229.)  “Section 229 is found in article 1 of division 2, part 1, chapter 1 of the Labor Code, encompassing sections 200 through 244.  Thus, if a cause of action seeks to collect due and unpaid wages pursuant to sections 200 through 244, that action can be maintained in court, despite an agreement to arbitrate.”  (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 684.)  However, “[a]n exception to the general rule occurs when there is federal preemption by the FAA, as applied to contracts evidencing interstate commerce. [Citation.]”  (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1208.)

 

Plaintiff’s claims for failure to provide meal and rest breaks, failure to provide accurate written wage statements, and for waiting time penalties do not seek to collect due and unpaid wages for purposes of Labor Code section 229.  (See Lane, supra, 224 Cal.App.4th at p. 684.)  The only cause of action that falls within section 229 is the fourth cause of action for failure to timely pay all final wages.  The issue, then, is whether the FAA preempts section 229’s application to this cause of action.

 

“A written provision in . . . a contract evidencing a transaction involving [interstate] commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’  (9 U.S.C.A. § 2.)    The phrase “evidencing a transaction” means the transaction must turn out, in fact, to involve interstate commerce, and the phrase “involving commerce” is functionally equivalent to “affecting commerce” and invokes Congress’s full powers of commerce.  (See Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 272-274.)

 

Defendants carry their burden to show that the Arbitration Agreement involves interstate commerce.  The record shows that Defendant operates stores in ten states, including California, and that many of the products and food sold is manufactured, produced or distributed from outside of California.[22]  Plaintiff’s duties included display, stocking and ordering of such products.[23]  Thus, Plaintiff’s employment facilitated Defendant’s transactions involving interstate commerce, and the Arbitration Agreement concerns disputes arising out of this employment relationship.  Under these circumstances, the Court finds that Plaintiff’s employment-related contract with Defendant is a sufficient transaction involving or affecting interstate commerce such that the FAA applies.  Accordingly, because of federal preemption and the strong national policy favoring arbitration, Labor Code section 229 cannot prevent enforcement of the Arbitration Agreement as to Plaintiff’s fourth cause of action.

 

Unconscionability

 

“[A]fter Concepcion, unconscionability remains a valid defense to a petition to compel arbitration. . . . Although courts may not rewrite agreements and impose terms to which neither party has agreed, it has long been the proper role of courts enforcing the common law to ensure that the terms of a bargain are not unreasonably harsh, oppressive, or one-sided.  [Citations.]”  (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1142-1143.)  “What is new is that Concepcion clarifies the limits the FAA places on state unconscionability rules as they pertain to arbitration agreements.  It is well established that such rules must not facially discriminate against arbitration and must be enforced evenhandedly.  Concepcion goes further to make clear that such rules, even when facially nondiscriminatory, must not disfavor arbitration as applied by imposing procedural requirements that ‘interfere[] with fundamental attributes of arbitration,’ especially its ‘ “lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.” [Citation.]’ . . . .  Importantly, state-law rules that do not ‘interfere[] with fundamental attributes of arbitration’ [citation] do not implicate Concepcion’s limits on state unconscionability rules.”  (Sonic-Calabasas, supra, 57 Cal.4th at p. 1143.)

 

“ ‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’  [Citation.]  But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’  [Citations.]  In other words, 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.”  (Armendariz, supra, 24 Cal.4th at p. 114.)

 

“ ‘[T]he party opposing arbitration … ha[s] the burden of proving that the arbitration provision [is] unconscionable. [Citation.]’”  (Nelsen v. Legacy Partners Residential, Inc. (2012) 207 Cal.App.4th 1115, 1123.)

 

“Procedural unconscionability” concerns the manner in which the contract was negotiated and the parties’ circumstances at that time.  It focuses on the factors of oppression or surprise.  (See Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App. 4th 1322, 1329.)  Here, Plaintiff claims that in January of 2013, he was provided with a “SPROUTS handbook along with accompanying documents” and was told to read and sign the documents, but he was not informed that he was being provided with an arbitration agreement.[24]  However, Plaintiff does not dispute the authenticity of the Acknowledgment forms submitted by Defendants purporting to show Plaintiff’s signature.  These forms indicate that the employee has been provided with a copy of the Mutual Binding Arbitration Agreement.[25]  The Arbitration Agreement itself is a short document that clearly indicates the employee’s waiver of the right to a court action.  Thus, the arbitration terms were not hidden in an unreasonably prolix form.  (See Kinney, supra, 70 Cal.App.4th at pp. 1329-1330.)

 

However, “ ‘[w]hen the weaker party is presented the clause and told to “take it or leave it” without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present.’  [Citations.]”  (McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 91.)  Here, because the Arbitration Agreement arises in the context of Plaintiff’s employment, there is an inherent disparity in bargaining power between Plaintiff and Defendants.  That Plaintiff was given “an opportunity to ask questions about the agreement before signing and acknowledge receipt and compliance with its terms”[26] does not mean he was able to negotiate its terms.  The Acknowledgment forms confirm that Plaintiff’s agreement to the Arbitration Agreement “is a term and condition of [his] employment[.]”[27]  Thus, there is a moderate degree of procedural unconscionability given that Plaintiff was in a weaker bargaining position and had to accept the Arbitration Agreement as a condition of continued employment without an opportunity for meaningful negotiation.

 

Substantive unconscionability focuses on the terms of the agreement and whether those terms are “overly harsh” or “one-sided” as to “shock the conscience.”  (See Armendariz, supra, 24 Cal.4th at p. 114; Pardee Construction Co. v. Superior Court (2002) 100 Cal.App.4th 1081, 1090.)  In assessing substantive unconscionability, the “paramount consideration” is mutuality of the obligation to arbitrate.  (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1287.)  California law requires a “modicum of bilaterality” in an arbitration agreement.

 

Given the disadvantages that may exist for plaintiffs arbitrating disputes, it is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on “business realities.”  As has been recognized “ ‘unconscionability turns not only on a “one-sided” result, but also on an absence of “justification” for it.’ ” [Citation.]  If the arbitration system established by the employer is indeed fair, then the employer as well as the employee should be willing to submit claims to arbitration.  Without reasonable justification for this lack of mutuality, arbitration appears less as a forum for neutral dispute resolution and more as a means of maximizing employer advantage.  Arbitration was not intended for this purpose.  [Citation.]

 

(Armendariz, supra, 24 Cal.4th at pp. 117-118.)

 

Plaintiff argues the Arbitration Agreement is substantively unconscionable because it is silent on discovery.  However, the Arbitration Agreement incorporates and attaches the JAMS Employment Arbitration Rules & Procedures.  “Like any other contract, an arbitration agreement may incorporate other documents by reference.  [Citation.]”  (Lane, supra, 224 Cal.App.4th at p. 692.)  The JAMS rules provide for the immediate exchange of non-privileged documents, at least one deposition for each party (with additional depositions in the arbitrator’s discretion), and conferences for resolution of discovery disputes.[28]  Furthermore, the arbitrator may issue subpoenas for the attendance of witnesses or the production of documents at the hearing.[29]  Although discovery is somewhat streamlined and the arbitrator has discretion in terms of controlling discovery, neither of these circumstances renders the Arbitration Agreement substantively unconscionable.  (See Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 983-984.)

 

Plaintiff further argues the Arbitration Agreement lacks a provision for judicial review.  The Arbitration Agreement states that “[t]he Employee or the Company may bring an action in court … to confirm, vacate, or enforce an arbitration award[.]”[30]  Armendariz requires that in order for judicial review to be successfully accomplished, the arbitrator must issue a written arbitration decision that will reveal the essential findings and conclusions on which the award is based.  (Armendariz, supra, 24 Cal.4th at p. 107.)  Here, pursuant to Armendariz, the JAMS rules require the arbitrator to issue “a written statement signed by the Arbitrator regarding the disposition of each claim and the relief, if any as to each claim.  The Award shall also contain a concise written statement of the reasons for the Award, stating the essential findings and conclusions on which the award is based.”[31]

 

Plaintiff argues the Arbitration Agreement lacks mutuality because it requires Plaintiffs to arbitrate any claims he has against Sprouts’ owners, directors, officers, managers, employees or agents, but does not require these individuals to arbitrate their claims against him.  Plaintiff seems to be referring to the definition of “Company” in the “Agreement” section of the Arbitration Agreement.[32]  However, the “Included Claims” provision requires arbitration of “any Dispute between the Employee … and the Company (and its officers, directors, employees, agents, successors, affiliates and assigns) that arise [sic] out of, relate in any manner, or have any relationship whatsoever to the employment or the termination of employment of Employee, including, without limitation, any Dispute arising out of or related to this Agreement… .”[33]  Under this broad definition, any disputes Defendants’ officers, directors, employees, and agents may have against Plaintiff arising out of his employment with Defendants would constitute an included claim under the Arbitration Agreement.

 

Thus, Plaintiff’s arguments regarding substantive unconscionability are without merit.

 

PAGA Waiver

 

The Arbitration Agreement contains a waiver of the right to bring class, collective, and representative claims in court or arbitration.

 

In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, the California Supreme Court held that when a class action waiver “is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party ‘from responsibility for [its] own fraud, or willful injury to the person or property of another.’  [Civ. Code, § 1668.]  Under these circumstances, such waivers are unconscionable under California law and should not be enforced.”  (Discover Bank, supra, 36 Cal.4th at pp. 162-163.)

 

In Gentry v. Superior Court (2007) 42 Cal.4th 443, the California Supreme Court held that class action waivers in an employment contract could operate as exculpatory clauses against public policy as set forth in California Civil Code section 1668 and interfere with employees’ ability to vindicate their unwaivable statutory rights to overtime pay.  “[W]hen it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class action waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ rights to overtime pay through individual arbitration.  If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class action waiver to ensure that these employees can ‘vindicate [their] unwaivable rights in an arbitration forum.”  (Gentry, supra, 42 Cal.4th at pp. 463-464.)

 

In Concepcion, supra, the U.S. Supreme Court invalidated the Discover Bank Rule on the grounds that it was an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA to ensure that private arbitration agreements are enforced according to their terms so as to facilitate streamlined proceedings.  (Concepcion, supra, 131 S.Ct. at p. 1752.)  Concepcion found that the Discover Bank Rule “interferes with arbitration” because “it allows any party to a consumer contract to demand it ex post.  The rule is limited to adhesion contracts, [citation], but the times in which consumer contracts were anything other than adhesive are long past.  [Citations.]  The rule also requires that damages be predictably small, and that the consumer allege a scheme to cheat consumers.  [Citation.]  The former requirement, however, is toothless and malleable…, and the latter has no limiting effect, as all that is required is an allegation.”  (Concepcion, supra, 131 S.Ct. at p. 1750.)  However, Concepcion noted that the FAA’s “saving clause preserves generally applicable contract defenses” such as unconscionability.  (Id. at p. 1747.)

 

In Brown v. Ralphs Grocery (2011) 197 Cal.App.4th 489, which involved a class and representative action under the PAGA, the appellate court held that a PAGA claim was fundamentally a law enforcement action designed to protect the public, and thus, it did not frustrate the purposes of the FAA.

 

In Iskanian, supra, the California Supreme Court held that “[u]nder the logic of Conception, the FAA preempts Gentry’s rule against employment class waivers.”  (Iskanian, supra, at *14.)  However, the Iskanian court held that under Civil Code sections 1668 and 3513, “an employee’s right to bring a PAGA claim is unwaivable.”  (Id. at *52-53.)  The court further held that an employment agreement which compels the waiver of representative claims under the PAGA is contrary to public policy and unenforceable as a matter of law, and a state-law rule against PAGA waivers does not frustrate the FAA’s objectives because “the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state Agency.”  (Id. at *55-56, original italics.)

 

Here, Plaintiff brings a PAGA claim, and under Iskanian, the Arbitration Agreement’s waiver of representative actions is against public policy and unenforceable.  Defendants argue that the Court should sever the PAGA claim and stay this action pending completion of the arbitration.  Defendants argue that a stay of this action is mandated under California Code of Civil Procedure section 1281.4, which provides in relevant part:

 

If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.

 

Iskanian left open for remand various questions on how to deal with a case where individual claims must be arbitrated, but PAGA waivers are found to be unenforceable.  “This raises a number of questions: (1) Will the parties agree on a single forum for resolving the PAGA claim and other claims? (2) If not, is it appropriate to bifurcate the claims, with individual claims going to arbitration and the representative PAGA claim to litigation? (3) If such bifurcation occurs, should the arbitration be stayed pursuant to Code of Civil Procedure section 1281.2?  [Citation.]”  (Iskanian, supra, at *72.)  California Code of Civil Procedure section 1281.2 provides in relevant part:

 

If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies.

 

Under this provision, the Court may defer the order to arbitrate pending litigation of Plaintiff’s PAGA and UCL claims.  Between section 1281.4 and 1281.2, the latter is more applicable because no court has yet ordered arbitration of the arbitral claims, while the non-arbitral PAGA and UCL claims are the subject of a pending action in this Court.

 

Accordingly, Defendants’ motion to compel arbitration is DENIED IN PART as to the PAGA and UCL claims.  The Court defers ordering arbitration on the remaining individual claims pending litigation of the PAGA and UCL claims.