From JDSupra, Jared Slater discusses a recent case in California in which the court considered a confidentiality agreement signed at the same time as the arbitration agreement in it analysis of whether the arbitration agreement was enforceable and determined that takent together they lacked mutuality which made the arbitration agreement unconscionable and unenforceable. Jared writes:
An arbitration agreement can appear mutual on its face and still be interpreted as favoring the employer. That has become a recurring ground for courts to deny employer motions to compel arbitration, and Cluck v. GEO Secure Services, LLC is the latest example. In Cluck, California’s Fourth District Court of Appeal held that the arbitration agreement had to be construed together with a confidentiality agreement the employee signed the same day. The two documents read together were held to be substantively unconscionable because they sent the employee’s likely claims to arbitration while leaving a judicial forum available for the employer.
GEO hired Jeffrey Cluck at its El Centro detention facility in July 2022. During onboarding he electronically signed a two-page arbitration agreement covering any dispute arising out of or related to his employment. Cluck also signed the GEO Group Confidentiality Agreement. It barred him from disclosing confidential information, using company property to compete, and soliciting GEO employees for a competitor. The Confidentiality Agreement also addressed dispute resolution in three places: a special remedies clause on irreparable harm and injunctive relief, a Florida venue clause, and a jury waiver. After Cluck filed a putative wage and hour class action, GEO moved to compel arbitration. The trial court denied the motion due to a high level of unconscionability in the arbitration agreement alone, but declined to read it with the Confidentiality Agreement, reasoning that nothing in the latter pertained to resolving employment disputes.
On appeal by the employer, the court found modest procedural unconscionability – an adhesive agreement presented at hire, with an opt-out too cumbersome to offer a meaningful choice – enough to warrant close scrutiny of the terms. The more consequential question was whether the agreements had to be construed together.
Civil Code section 1642 provides that contracts relating to the same matters, between the same parties, and made as parts of one transaction are taken together. In light of Fuentes v. Empire Nissan, Inc., decided by the Supreme Court while the appeal was pending, and the appellate decisions in Alberto v. Cambrian Homecare and Silva v. Cross Country Healthcare, Inc., the court held that the trial court had defined the “same issue” too narrowly. An employee’s alleged disclosure of confidential information can create a dispute arising out of employment, and Cluck’s duties subject to the confidentiality provisions would not have existed but for that employment. That both documents contained integration clauses stating that each agreement supersedes all prior oral or written agreements or understandings between the parties did not change the analysis, because neither agreement referred to the other.
Further, under Ramirez v. Charter Communications, Inc., an agreement that singles out certain claims for arbitration must be mutual, and absent a justification grounded in business realities, the lack of mutuality is assumed to be unconscionable. GEO argued there was no imbalance, reasoning that because Cluck never opted out, the arbitration agreement controlled and bound GEO to arbitrate confidentiality disputes as well. The court rejected a reading that would render the confidentiality agreement’s forum selection clause meaningless. Harmonized, the arbitration agreement set the default forum and the confidentiality agreement carved out the claims GEO was most likely to bring, and GEO offered no business justification for the difference. The Florida venue, the jury waiver (a term Stoker v. Blue Origin, LLC found substantively unconscionable) and the averment that a breach would cause irreparable harm each further demonstrated that the balance of the agreements favored the employer.
For California employers, the practical significance of Cluck lies less in the arbitration agreement than in the documents signed alongside it. Confidentiality, invention assignment, and restrictive covenant agreements and provisions executed during onboarding may be treated as part of the same agreement, and terms directing employer-side claims to court, to an out-of-state forum, or to a bench trial can affect the enforceability of an otherwise enforceable standalone arbitration agreement.
