Case Name: Jesus Chavez v. Guess? Retail, Inc., et al.
Case No.: 16-CV-300341

This is a putative wage and hour class action by an employee of defendant Guess? Retail, Inc. Before the Court is defendant’s petition to compel arbitration and stay the action, which plaintiff opposes.

I. Factual and Procedural Background

According to the complaint, plaintiff was a non-exempt employee at defendant’s Gilroy store until December of 2015. (Complaint, ¶ 8.) He alleges that defendant had a policy of failing to pay minimum and overtime wages and provide required meal and rest breaks, as well as payroll documents, to its employees. (Id. at ¶ 20.) On September 26, 2016, plaintiff filed his complaint, asserting five causes of action for Labor Code violations (the first through fifth causes of action), a claim under the Private Attorneys General Act (“PAGA”) (the sixth cause of action), and a claim for violation of Business & Professions Code section 17200 (the seventh cause of action). As described in his opposition papers, plaintiff claims that defendant improperly required employees to undergo security checks while off the clock.

II. Legal Standard

Code of Civil Procedure section 1281.2 provides that a court must grant a petition to compel arbitration “if it determines that an agreement to arbitrate … 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 [or] (c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party … and there is a possibility of conflicting rulings ….” (Code Civ. Proc., § 1281.2; see also 9 U.S.C. § 3 [the court must grant a motion to compel arbitration if any suit is brought upon “any issue referable to arbitration under an agreement for such arbitration”].)

The moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. (See Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 396 [under both federal and state law, “the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate”]; Rosenthal v. Great Western Fin’l Securities Corp. (1996) 14 Cal.4th 394, 413 [moving party’s burden is a preponderance of the evidence].) The burden then shifts to the resisting party to prove a ground for denial. (Rosenthal v. Great Western Fin’l Securities Corp., supra, 14 Cal.4th at p. 413.)

If the court orders arbitration “of a controversy which is an issue involved in [the] action or proceeding pending before [it], the court … shall, upon motion of a party …, 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.” (Code Civ. Proc., § 1281.4.) “If the issue which is the controversy subject to arbitration is severable, the stay may be with respect to that issue only.” (Ibid.)

III. Arbitration Agreement

Here, it is undisputed that plaintiff signed an arbitration agreement in connection with his employment that covers plaintiff’s claim in this action, other than his PAGA claim (which is discussed below). (See Decl. of Thomas Andreasen ISO Petition, Ex. A, p. 1 [agreement encompasses any claim related to “(a) any contract of employment between the parties; or (b) the termination of the employment relationship between the parties; or (c) any allegation of unlawful discrimination, retaliation or harassment,” including specified claims such as “[c]laims for wages or other compensation due”].) However, plaintiff argues that the agreement is an illusory contract. Plaintiff also contends that the agreement is both substantively and procedurally unconscionable.

A. Existence of Agreement to Arbitrate

Because arbitration is a contractual matter, a party who has not agreed to arbitrate a controversy cannot be compelled to do so. (Harris v. Tap Worldwide, LLC (2016) 248 Cal.App.4th 373, 380.) While there is a strong public policy favoring contractual arbitration, that policy does not extend to parties who have not agreed to arbitrate; absent “a clear agreement” to do so, courts will not infer that the right to a jury trial has been waived. (Esparza v. Sand & Sea, Inc. (2016) 2 Cal.App.5th 781, 787, 790.) An agreement to arbitrate may be express or implied so long as it is written. (Harris v. Tap Worldwide, LLC, supra, 248 Cal.App.4th at p. 383.)

Here, it is undisputed that plaintiff executed a specific, written “Agreement to Arbitrate” any employment-related disputes at JAMS, which includes a class action waiver. (See Andreasen Decl., Ex. A, p. 2.)

Plaintiff contends that the agreement is illusory because it states that it is “not a contract of employment, and shall not be construed to create any right to continued employment of Associate with the Company ….” But this disclaimer has no bearing on whether the parties entered a contract with respect to arbitration, and other language found throughout the agreement makes it abundantly clear they did. (See Sanchez v. Carmax Auto Superstores, LLC (2014) 224. Cal.App.4th 298, 401 [rejecting an argument identical to plaintiff’s].) Unlike in the cases plaintiff cites, the agreement here took the form of a standalone contract rather than a provision in an employee handbook and was clearly consented to by plaintiff.

In addition, plaintiff argues that there was no consideration for the agreement because it states that “Associate acknowledges and represents that this Agreement is not in consideration of Associate’s employment with the Company, and that execution of this Agreement is not and was not a condition of Associate’s employment ….” Again, this separation of the arbitration agreement from the underlying employment agreement does not invalidate the arbitration agreement. “[T]he mutual promises of the parties” comprise adequate consideration for the agreement. (Fireman’s Fund Ins. Co. v. Sizzler USA Real Property, Inc. (2008) 169 Cal.App.4th 415, 421, citing 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 212, p. 247.)
Defendant accordingly meets its burden to show there is an agreement to arbitrate plaintiff’s non-PAGA claims.

B. Unconscionability

In Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, the California Supreme Court summarized the rules applicable to the unconscionability defense in a case involving an automobile sales contract. The Court described the general principles of the doctrine as follows:

One common formulation of unconscionability is that it refers to an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh and one-sided results. 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. But they need not be present in the same degree. Essentially a sliding scale is invoked [where] 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.
(Sanchez, supra, 61 Cal.4th at p. 910, internal citations and quotations omitted, italics original.)
Plaintiff contends that the agreement at issue is both substantively and procedurally unconscionable. With respect to substantive unconscionability, plaintiff contends that the agreement applies only to claims typically brought by the employee, “exposes” him to arbitration costs, and limits discovery.

In support of his first argument, plaintiff cites Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, which held that a “modicum of bilaterality” is required in an arbitration agreement. (At p. 117.) Armendariz explained that “[g]iven 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 ….” (Ibid.) Applying this standard, Amendariz invalidated an agreement that “requires the arbitration of employee-but not employer-claims arising out of a wrongful termination.” (Id. at p. 120.)

Contrary to the agreement in Amendariz, the agreement here encompasses a wide range of employment disputes and expressly binds both parties. Plaintiff complains that the agreement exempts claims for provisional relief and for worker’s compensation and unemployment benefits. However, both of these “exemptions” are imposed by law and do not render the agreement unconscionable. (See Mercuro v. Superior Court (Countrywide Securities Corp.) (2002) 96 Cal.App.4th 167, 176 [“Workers’ compensation and unemployment benefits are governed by their own adjudicatory systems; neither is a proper subject matter for arbitration.”]; Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1247 [“the provisional relief clause does no more than recite the procedural protections already secured by section 1281.8(b) [of the California Arbitration Act], which expressly permits parties to an arbitration to seek preliminary injunctive relief during the pendency of the arbitration”].)

With regard to arbitration costs, the agreement provides that the Company shall pay all costs attributable to arbitration “[t]o the extent required by applicable law, and only to this extent. … Otherwise, the costs of arbitration will be paid equally by Associate and the Company. Each party shall pay for its own reasonable costs (filing fees or other administrative expenses) and attorneys’ fees, if any.” Under California law, the employer is required to pay costs “unique to the arbitral forum.” (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 661.) The agreement clearly provides that Guess will do so here. Contrary to plaintiff’s argument, the reference to plaintiff’s “own … administrative expenses” does not render the agreement ambiguous in this respect. Nor does the fact that the JAMS rules “do[] not preclude an employee from contributing to administrative and Arbitrator fees and expenses” and provide for joint and several liability for such costs by default. The parties’ agreement expressly provides that it will control over the JAMS rules, and that defendant will pay the costs of arbitration.

Finally, plaintiff argues that the agreement improperly limits discovery. The agreement provides that “[t]he arbitrator shall have the authority to order such discovery by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the Federal Rules of Civil Procedure and the expedited nature of arbitration.” Unlike in the cases plaintiff cites, this is not a situation where “the permitted amount of discovery is so low while the burden for showing a need for more discovery is so high that plaintiff’s ability to prove her claims would be unlawfully thwarted by the discovery provision in the agreement.” (Ontiveros v. DHL Exp. (USA), Inc. (2008) 164 Cal.App.4th 494, 512-513 [agreement permitting only one deposition without a showing of “substantial need” was unconscionable], citing Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702 [agreement limited discovery to two sworn deposition statements absent a “compelling need” to allow other discovery].) Courts have found that the limits imposed by the parties’ agreement, which mirror those in the American Arbitration Association’s rules, are permissible. (See Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1130, fn. 21 [“the AAA rules governing discovery … are fair to claimants”].)

As plaintiff fails to identify any substantive issue with the arbitration agreement, his opposition must fail. In addition, the Court notes that neither the fact that plaintiff was not directly provided with the JAMS arbitration rules nor the agreement’s lack of an express reference the Labor Code renders the agreement procedurally unconscionable. (See Baltazar v. Forever 21, Inc., supra, 62 Cal.4th at p. 1246 [incorporation of arbitration rules by reference is only relevant to unconscionability where specific provisions of the rules are challenged as substantively unconscionable] Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 686; [the “assertion that an arbitration agreement must specifically name the Labor Code provisions in order to bring those statutory labor claims within the scope of the arbitration agreement has no support in California law”]; compare Renteria v. Prudential Ins. Co. of America (9th Cir. 1997) 113 F.3d 1104, 1106 [discussing “knowing waiver” requirement applicable to Title VII claims under federal law].)

The Court consequently finds that there is an enforceable agreement to arbitrate plaintiff’s non-PAGA claims.

IV. Remaining Issues

While the agreement also purports to waive any PAGA claims “unless prohibited by applicable law” (Andreasen Decl., Ex. A, p. 2), the parties agree that the waiver is unenforceable in this respect. (See Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348.) Defendant contends that, since the agreement contains a severability provision, the Court must sever the PAGA waiver, order the non-PAGA claims to arbitration, and stay the PAGA claim. In support of this outcome, it cites Franco v. Arakelian Enterprises, Inc. (2015) 234 Cal.App.4th 947, which appears to be the only published authority addressing circumstances where employment claims subject to an arbitration agreement are asserted together with a PAGA claim in a single action. Franco held that “[b]ecause the issues subject to litigation under the PAGA might overlap those that are subject to arbitration of Franco’s individual claims, the trial court must order an appropriate stay of trial court proceedings.” (At p. 966; compare Hernandez v. Ross Stores, Inc. (2016) 7 Cal.App.5th 171 [single-count PAGA claims may not be “split” and referred to arbitration to determine whether plaintiff is an “aggrieved employee”].)

Plaintiff does not squarely address the appropriate treatment of his PAGA claim in the event the Court finds his other claims are subject to arbitration. Rather, he simply repeats his argument that the entire agreement should not be enforced because it is “rife with unconscionability.” For the reasons already discussed, the Court disagrees. Following Franco, the Court will stay the entire action and order the non-PAGA claims to arbitration.

Finally, defendant asks the Court to strike plaintiff’s class allegations, but its request does not comply with the requirements of a motion to strike. (Cal. Rules of Court, rule 3.1322(a) [“A notice of motion to strike a portion of a pleading must quote in full the portions sought to be stricken except where the motion is to strike an entire paragraph, cause of action, count, or defense.”].) Perhaps for this reason, plaintiff does not address defendant’s request in his opposition papers. Under the circumstances, the Court will not strike any language from the complaint at this time.

V. Conclusion and Order

Defendant’s petition to compel arbitration is GRANTED as to the first through fifth and seventh causes of action. The entire action is stayed pending completion of arbitration. The Court will not strike any language from plaintiff’s complaint at this time.

The Court will prepare the order.