Must prove both procedural unconscionability and substantive unconscionability to rescind an arbitration agreement.

MAUREEN SALGADO, v. CARROWS RESTAURANTS, INC., et al.,

Court of Appeals of California, Second District, Division Six. Filed February 26, 2019.(2019 DJDAR 2459)

It is difficult for an employee to rescind an arbitration agreement. Courts have ruled that the party opposing arbitration must prove both procedural unconscionability and substantive unconscionability. Procedural unconscionability involves the circumstances of contract negotiation and formation. Substantive unconscionability relates to the fairness of the agreement’s terms, e.g., if the agreement is going to take away the right of trial and then, in addition, impose the same or similar cost of litigation on the party opposing arbitration as it would cost the party to go to trial; that would be just one example of substantive unconscionability.

Here, Maureen Salgado (“Salgado”) began working at Carrows Restaurant in 1984. (“Carrows”) On November 22, 2016, she filed a lawsuit in the Ventura County Superior Court alleging employment discrimination and violation of civil rights against Food Management Partners, dba Carrows Restaurant. In April 2017, she amended her complaint to add Carrows Restaurant and other defendants. In September 2017, Carrows filed a motion to compel arbitration. In that motion Carrows said Salgado “entered into a binding and enforceable agreement to arbitrate all claims arising out of her employment with Defendants, and all causes of action alleged in her Complaint arise out of such employment.” The arbitration agreement was attached to the motion indicate that Salgado signed the agreement on December 7, 2016. Carrows did not request that Salgado consult with her attorney before signing the agreement.  The trial court ruled that “Defendants …failed to demonstrate that the arbitration agreement applies to a suit that was filed prior to its signature.” The Court of Appeals (“Court”) had no problem with the enforceability of the arbitration agreement, but questioned whether Carrows knew that Salgado was represented by an attorney when it asked her to sign the agreement.   So, the Court had only one question: “Did Carrows know that at the time Salgado signed the arbitration agreement that she was represented by counsel?”

 The Court sent the case back to the trial court to determine whether Carrows knew (or should have known) that Salgado was represented by an attorney when Carrows asked her to sign the arbitration agreement. In doing so, the Court noted that otherwise doubts about the enforceability of an arbitration agreement should be resolved “in favor of sending the parties to arbitration,” citing, Cione v. Foresters Equity Services, Inc.(1997) 58 Cal.App.4th 625, 642. The Court further noted that the issue of the extent of coverage of an arbitration agreement should be decided by the trial court and “arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute, citing Cruise v. Kroger Co.(2015)233 Cal.App.4th 390, 397, where the trial court ruled that “… language of the agreement suggest[s] that it applies to future disputes not ones that have already resulted in a formal lawsuit. The Supreme Court has stated that a petition to compel arbitration is not to be granted when there are grounds for rescinding the agreement.” Engalla v. Permanente Medical Group, Inc. (1997)15 Cal.4th 951, 973.

Filed Under: Class Action (Employment), Labor & Employment