SEVERANCE

Ramirez v. Charter Communications, Inc., 108 Cal. App. 5th 1297

Silva v. Cross Country Healthcare, Inc., 111 Cal. App. 5th 1311


Ramirez v. Charter Communications, Inc., 108 Cal. App. 5th 1297
In Ramirez v. Charter Communications, Inc. (2024) 16 Cal. 5th 478, the Supreme Court found the arbitration agreement in this matter to be unconscionable because 1) it exempted from arbitration causes of action that the employer was more likely to bring and hence there was a lack of mutuality; 2) it shortened the statute of limitations for filing claims; and 3) it created a potential for an unlawful award of attorney fees. However, the Court remanded the matter to the Court of Appeal to determine if the three unconscionable clauses could be severed.

The Court of Appeal declined to sever. It was skeptical of Charter's position that the first two criteria for severing the unconscionable provisions (i.e., the illegality is collateral to the contract's main purpose, and it is possible to cure the illegality by means of severance) were satisfied. First, it disagreed with Charter's characterization that the central purpose of the agreement was to “mutually arbitrate disputes arising out of or relating to [Ramirez's] pre-employment application and/or employment with Charter or the termination of that relationship.” This characterization was belied by the agreement's lack of mutuality regarding arbitrable claims. A wide range of statutory and policy-based claims that would typically be initiated by an employee were directed into arbitration, but only a small subset of claims that would typically be initiated by Charter were similarly directed.

Second, Charter argued the unconscionable provisions could simply be severed without reformation or augmentation of the agreement. The filing time limits provision and the attorneys' fees provision could easily be deleted. But section C (excluded claims provision) was more problematic. Section C specifically excluded 14 claims from arbitration. Although most of those claims are ones that were more likely to be brought by an employer against the employee, Ramirez could bring some of those claims. By simply deleting section C, thereby subjecting all 14 claims to arbitration, the Court would be effectively rewriting the agreement to cover claims Ramirez did not agree to arbitrate. Courts cannot, however, rewrite agreements and impose terms to which neither party has agreed.

Even if the unconscionable provisions were collateral to the contract's main purpose and it were possible to sever those provisions, severance was still not warranted because enforcing the balance of the contract would not be in the interests of justice. The multiple defects in the agreement indicate that the stronger party engaged in a systematic effort to impose arbitration on the weaker party not simply as an alternative to litigation, but to secure a forum that worked to the stronger party's advantage. Specifically, the agreement impermissibly conveyed the following to the employee: her claims were likely subject to arbitration, but claims likely to be brought by Charter against her were exempt from arbitration; if she challenged the enforceability of the agreement, she would be required to pay Charter's attorneys' fees and costs if the court ultimately compelled arbitration, even if some of her arguments were successful.

Severance of these provisions and enforcement of the remainder of the agreement could create an incentive for an employer to draft a one-sided arbitration agreement in the hope employees would not challenge the unlawful provisions, but if they did, the court would simply modify the agreement to include the bilateral terms the employer should have included in the first place.

Silva v. Cross Country Healthcare, Inc., 111 Cal. App. 5th 1311
Plaintiffs sued Cross Country, a staffing agency, for Labor Code violations. Cross Country moved to compel arbitration. When they were hired, each plaintiff signed two agreements. One was a relatively straightforward arbitration agreement. The other was dubbed an “employment agreement”. The employment agreement contained several prohibitions, including a prohibition against the employee for using or disclosing confidential information. The agreement also permitted Cross Country to obtain an injunction, without filing a bond, for any violation of these prohibitions. The trial court applied Civil Code Section 1642, held that the two agreements should be construed together and denied the motion, holding that the agreements were unconscionable because of lack of mutuality. Cross Country appealed.

The Court of Appeal affirmed. Although Cross Country drafted a squeaky clean arbitration agreement that, in its own words, was “beyond reproach,” it drafted the separate employment agreement that superseded the arbitration agreement in a way that skewed it to unfairly and unjustifiably favor Cross Country. It required its new hires to sign both agreements on a take-it-or-leave-it basis, and then filed a motion to compel arbitration based solely on the arbitration agreement all while keeping the employment agreement out of sight. By this conduct, Cross Country sought to accomplish in two steps what it could not do in one—namely, to get the benefit of an agreement to arbitrate that would be unconscionable under long-standing California law. In this circumstance, the trial court did not abuse its discretion in concluding that allowing Cross Country to get the benefit of compelling its employees into arbitration would neither deter its deplorable conduct nor otherwise serve the interests of justice