On April 19, 2023, the California Court of Appeals ruled that an employer’s arbitration agreement was unenforceable due to inconceivable terms found in other documents provided to employees during the onboarding process. The decision was ratified for publication on May 10, 2023. Albert v. Cambriano Home Assistance (April 19, 2023, No. B314192) ___Cal.App.5th, the Court of Appeal upheld the lower court’s decision that a standalone arbitration agreement was inconceivable based on the terms contained in the employer’s nondisclosure agreement. As the arbitration and confidentiality agreements were presented to the employee at the time of hiring and related to the employee’s employment, the Court held that the employer’s confidentiality agreement formed part of the arbitration “contract” and the two agreements should be read together. The Court then argued that inconceivable terms in the confidentiality agreement permeated the arbitration agreement, rendering it unenforceable. O albert The decision is an important development for employers using arbitration agreements alongside other types of employment agreements, as it creates a new risk of losing the benefits of arbitration.

Cambrian Homecare hired Jennifer Playu Alberto in 2019. Cambrian is a provider of home care services. Alberto was hired as an administrative employee. As part of the onboarding process, Cambrian required employees, including Alberto, to sign an independent arbitration agreement and a separate confidentiality agreement. The arbitration agreement required that most claims arising from the employment relationship be submitted to binding arbitration. The arbitration agreement also contained a class action and representative waiver. Cambrian did not sign the arbitration agreement, a point the lower court made but the Court of Appeals did not reach.

As is common with non-disclosure agreements, Alberto has agreed to keep Cambrian’s trade secrets confidential. Cambrian defined its trade secrets to include “compensation and salary data and other employee information”. The confidentiality agreement also required Alberto to consent to a court injunction without Cambrian filing if there is an actual or threatened breach of the non-disclosure agreement, and if a lawsuit were filed to enforce the confidentiality agreement, the prevailing party was entitled to recover its attorneys’ fees.

On October 27, 2020, Alberto filed a class action lawsuit against Cambrian in Los Angeles Superior Court, citing multiple wage and hour claims. On January 25, 2021, Alberto amended his complaint to add a request for penalties under the General Law of Private Lawyers (“PAGA”). Cambrian has petitioned to compel Alberto’s individual claims to arbitration pursuant to the parties’ arbitration agreement.

The lower court denied Cambrian’s petition on two grounds. First, the lower court held that there was no arbitration agreement formed because Cambrian had not signed the contract. Second, the arbitration agreement, which must be read in conjunction with the non-disclosure agreement, was procedural and substantially inconceivable.

On appeal, the Second Appellate District upheld the lower court’s denial of the petition to compel arbitration on grounds of inadmissibility. The Court did not reach the question of the formation of the contract. In reaching its conclusion, the Court of Appeals argued that the arbitration and confidentiality agreements must be interpreted together pursuant to section 1642 of the California Civil Code. Section 1642 states “several contracts relating to the same matters, between the same parties, and made as parties substantially to one transaction, are to be taken together.” Although the arbitration agreement and the nondisclosure agreement were independent documents and made no reference to one another, the Court considered the two agreements to be related because both agreements: (1) were filed on the same day: (2) were entered into as part of the Alberto agreement hiring; and (3) governed the process of resolving employment-related disputes.

Therefore, the Court conducted its inconceivability analysis by reading the two agreements as a single contract and affirmed the lower court’s conclusion that the arbitration agreement was inconceivable. The Court agreed with the lower court that the arbitration agreement was procedurally unfair as an adhesion contract and substantially unfair because it was: (1) not mutual; (2) prohibited Alberto from discussing compensation and salary information; and (3) required a “bulk” waiver of Alberto’s PAGA claims. The settlement was deemed non-mutual because the arbitration agreement required Alberto to bring his claims only to arbitration, while the confidentiality agreement allowed Cambrian to seek an immediate injunction. The prohibition on discussing pay in the non-disclosure agreement was deemed inconceivable because it violated Section 232 of the Labor Code, which expressly allows employees to discuss pay. PAGA’s wholesale waiver was based on language contained in the arbitration agreement itself. Although the arbitration agreement contained an express termination clause, the Court found that the lower court did not abuse its discretion by refusing to cut out the inconceivable clauses and apply the remainder of the arbitration agreement.

In the light of albert decision, employers should review their onboarding documents with counsel to determine the potential effect these documents may have on their arbitration agreements.