88 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com deadline until 30 days after a final judicial determination that the party must arbitrate instead of litigate, or 30 days after the judicial action ends, whichever date occurs first.71 Limited severability in arbitration agreements. Courts generally will save and enforce contracts by using a “blue pencil” to sever unenforceable provisions, leaving the rest of the contract intact. In California, it’s different. Armendariz authorizes courts to strike down arbitration agreements, the general availability of severance notwithstanding, if the existence of “multiple unlawful provisions” indicate “a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage,” thereby justifying a conclusion that “the arbitration agreement is permeated by an unlawful purpose.”72 Armendariz upheld the trial court’s refusal to sever offending provisions because (1) there were multiple unlawful provisions (both a limitation on damages and an “unconscionably unilateral arbitration clause”) and (2) they permeated the entire agreement. Furthermore, the employer’s post-dispute offer to waive the offending provisions did not save the day: “‘No existing rule of contract law permits a party to resuscitate a legally defective contract merely by offering to change it.’”73 The Court of Appeal has refused to enforce an arbitration agreement where it found that an invalid PAGA waiver was not severable, even though the agreement said it was severable. A car wash employee sued his employer for wage and hour violations, alleging both individual claims and a representative PAGA action. The employment handbook—provided to all employees in both English and Spanish—required arbitration of employment disputes and denied rights to bring a PAGA action. The English version said the PAGA-denial provision was severable, so that if that provision was invalid then the rest of the agreement would be enforceable, but the Spanish version said the PAGA-denial provision was not severable. The employee had agreed to arbitration by signing both the English and the Spanish handbook acknowledgements. In ruling against the employer, the Court of Appeal reasoned that although the English version stated that in the event of any conflict the English version would control, the difference between the two versions created an ambiguity to be construed against the employer, the drafting party, particularly since the arbitration agreement was a contract of adhesion.74 California courts have continued to follow Armendariz’s lead in declining to sever offensive provisions in arbitration agreements in a way that would leave the remaining provisions intact. One case involved a class action by truck drivers who, to keep their jobs, had to sign annual agreements with little notice and with no chance to bargain. The agreements classified them as independent contractors, contained a submerged arbitration clause, incorporated by reference AAA commercial rules including a cost-splitting provision, imposed a 120-day limitations period, and allowed only the company to seek provisional relief. Under these circumstances, the Court of Appeal upheld the trial court’s refusal to sever the offending provisions, because of the defendant’s “systematic effort to impose arbitration” as “an inferior forum” that worked to the individual’s disadvantage.75 One 2020 Court of Appeal decision considered an arbitration agreement with three “unconscionable” provisions: (1) a mutual waiver of punitive damages, (2) waiver of the employer’s duty to post a bond and show irreparable injury in order to obtain a judicial injunction to protect propriety information (which was unconscionable even though the employer generally had “reasonable justification” or “legitimate commercial need” for a non-mutual right to seek injunctive relief), and (3) a waiver of jury trial in any court proceeding that the agreement did not direct to arbitration. The Court of Appeal ruled that the trial court had erred in refusing to enforce the arbitration agreement merely because of its multiple unconscionable provisions,76 but upheld the refusal nonetheless on the independent ground that the “arbitration agreement is permeated with too high a degree of unconscionability for severance to rehabilitate.”77 In yet another 2020 case, the Court of Appeal observed at the outset that the arbitration agreement had an invalid waiver of PAGA claims, but the employer had not sought to enforce the invalid PAGA waiver; rather, the employer had sought to selectively enforce the rest of the arbitration agreement, against the plaintiff’s Labor Code claims.
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