AGREEMENT TO ARBITRATE-UNCONSCIONABLE CLAUSE IN ACCOMPANYING DOCUMENT

Silva v. Cross Country Healthcare, Inc., 111 Cal. App. 5th1311

Plaintiffs sued Cross Country, a staffing agency, for Labor Code violations. When they were hired, each plaintiff signed two agreements. One was a straightforward arbitration agreement. The other was dubbed an “employment agreement”. The employment agreement prohibited the employee from using or disclosing confidential information;, prohibited the employee from working for anyone else while employed by Cross Country; prohibited the employee, during employment and for 12 months after termination, from seeking to employ of retain anyone providing services to Cross Country; and required the employee for a period of 12 months after termination of employment, to promptly inform Cross Country in writing of any employment or other business affiliations that the employee had with any other business in competition with Cross Country. The agreement also permitted Cross Country to obtain an injunction, without filing a bond. Cross Country’s motion to compel arbitration was denied on the grounds that the employment agreement was incorporated into the arbitration agreement pursuant to Civil Code 1642, rendering the entire agreement to be unconscionable. Cross Country appealed.

The Court of Appeal affirmed. Cross Country asserted that section 1642 permits a court to read two instruments together only if those instruments (1) explicitly cross-reference one another or (2) necessarily depend upon one another. But such a limit is neither stated nor implied by section 1642's text; to the contrary, courts have found joint consideration of several instruments to be appropriate whenever it appears from extrinsic evidence that they were executed as a part of one transaction, whether necessary or not.

Next, Cross Country asserted that section 1642 cannot apply because the arbitration agreement and the employment agreement were not supported by the same consideration. But section 1642's application turns on whether the contracts to be read together are between the same parties, made as part of the same transaction, and relate to the same matters. The same consideration is not required. Indeed, reading section 1642 to require contracts to have the same consideration would mean that they are really a singular contract for which section 1642 is of no utility.

Cross Country also disputed the trial court's finding that the arbitration agreement and the employment agreement related to the same matter, asserting that the former set forth a dispute resolution mechanism while the latter covered a wide range of subjects relating to plaintiffs' employment. But section 1642 applies as long as the general subject matter is the same, even though the subject matter specifically described in each instrument may differ. Here, the arbitration agreement defined arbitration as the default dispute resolution mechanism and the employment agreement defined an exception to arbitration as the default dispute resolution mechanism for an employee's breaches of those duties. Thus, both agreements addressed the general subject matter of the mechanism to be used in resolving disputes between Cross Country and its employees.