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Arbitration provision so unconscionable that Portuguese-speaking driver need not arbitrate administrative wage-hour claims

By Marjorie Johnson, J.D.

In addition to at least a “moderate level” of procedural unconscionability, the central purpose of an arbitration agreement was to “evade the statutory protections” and limit the available remedies to a driver through numerous substantively unconscionable provisions.

An arbitration provision contained in an owner-operator employment agreement provided in English to a Portuguese-speaking driver was so permeated with unconscionability that severance of the unconscionable terms was not possible, a California appeals court ruled. It affirmed a trial court’s order denying the courier service’s petition to compel arbitration of the driver’s administrative wage claim filed with the California Labor Commissioner. Among other things, the arbitration provision required the driver to bear his own costs for arbitration by three specialized arbitrators, limited his potential recovery to only actual monetary damages, and took away his right to seek a less costly remedy before the Labor Commissioner (Subcontracting Concepts (CT), LLC v. De Melo, April 10, 2019, Kline, J.).

No time to review. The driver was hired to provide courier services after he responded to an ad and arrived at the company’s warehouse. He was told that he had to sign an owner/operator agreement “on the spot” and because he needed the job, he signed the documents. The agreement was five pages long, typed in small font, and made up of 27 numbered clauses, including the arbitration clause at issue here, which was the 26th clause and was several paragraphs long.

Not in native language. The driver’s native language was Portuguese, and he was not fluent enough in English to fully understand the documents. However, he was never asked if he wanted them translated into Portuguese, nor did anyone explain them to him in either language. He was also not given time to carefully review them or told that he could have an attorney do so. Furthermore, he claimed that he did not know he would be forced to go to arbitration in case of an employment-related dispute, nor did he understand the meaning or purpose of arbitration, that he would have to pay the cost of arbitration, or that he was giving up payments of attorneys’ fees and penalties.

Trial court denies motion to compel arbitration. The employee subsequently filed an administrative wage claim with the Labor Commissioner seeking unpaid overtime, meal, and rest period wages; reimbursement of unlawful wage deductions and business expenses; and statutory penalties for failing to provide accurate itemized wages statements, unpaid sick leave, and statutory waiting time penalties. Following a hearing, the trial court denied the employer’s petition to compel arbitration and stay the proceedings, finding that the arbitration clause was both procedurally and substantively unconscionable and that severance was not possible because the arbitration clause was permeated with unconscionability.

California law on unconscionability. At the outset, the appeals court rejected the employer’s contention that California law regarding unconscionability in the employee/employer context was inapplicable since the driver was an independent contractor. His wage claim contended that he was misclassified, and the court found it both unnecessary and inappropriate to resolve the question of whether he was an employee for purposes of the unconscionability determination under California law. There was plainly a power imbalance between the parties, the driver was required to sign an agreement containing a mandatory arbitration provision, and the underlying claims involved whether he was an employee or an independent contractor.

Procedural unconscionability. The trial court also properly found that the arbitration clause was procedurally unconscionable. First, it was adhesive as it was imposed on the driver “as a condition of employment” and with “no opportunity to negotiate.” Moreover, the driver was not fluent enough in English to fully understand legal documents written in English. He also did not understand what arbitration was and no one explained to him the meaning of any of the 27 clauses in the five-page agreement, including the arbitration clause. Finally, the arbitration clause referred to the American Arbitration Association, but did not clearly state what rules would govern arbitration, nor was he provided with a copy of the governing rules.

Substantive unconscionability. The appeals court also affirmed the trial court’s determination that the arbitration clause contained numerous provisions that were substantively unconscionable. For one, the requirement that he bear his own costs for arbitration was substantively unconscionable. The amount would likely be substantial since the agreement required three arbitrators, each having both a transportation and legal background.

The arbitration clause also barred him from recovering any attorney fees or other costs and stated that the arbitrators only had authority to award actual monetary damages and were not authorized to award punitive or equitable relief. This would preclude him from pursuing statutory penalties for the company’s wage-hour violations, thus undermining statutory protections to which he would otherwise be entitled.

The clause that improperly barred him from arbitrating any Private Attorneys General Act claims was also unenforceable; the state supreme court has held that an employee’s right to bring a PAGA action is unwaivable. It also precluded him from taking advantage of the relatively inexpensive remedy before the Labor Commissioner, replacing those protections with costs and obstacles he would not otherwise face, while significantly limiting the remedies that would otherwise be available.

Severance not possible. Finally, severance of the unconscionable terms was not possible since the arbitration clause was “permeated with unconscionability” and thus could not be enforced as a whole. In addition to at least a “moderate level” of procedural unconscionability, the central purpose of the arbitration provision was to evade the statutory protections and limit the remedies available to the driver, as reflected in the numerous specific provisions that were substantively unconscionable.

“Such multiple defects indicate a systematic effort to impose arbitration” on the driver “as an inferior forum” that worked to the employer’s advantage. Thus, since there was no single provision that could be stricken to remove the “unconscionable taint” from the agreement, the trial court did not abuse its discretion when it found the entire arbitration clause could not be enforced.