Employers often rely on multiple onboarding documents to establish an employee’s obligation to arbitrate employment-related disputes.  Unfortunately, that approach can invite a challenge from employees who argue that inconsistencies among the documents defeat mutual assent and void an agreement to arbitrate.  In that context, the California Court of Appeal’s recent decision in Santana v. Studebaker Health Care Center, LLC highlights the line between “ambiguity,” which courts resolve through contract interpretation, and “uncertainty,” which can actually void an agreement.

As part of his onboarding, Santana signed three arbitration-related documents, with overlapping but not identical terms.  He also signed a separate confidentiality agreement that allowed Studebaker to seek “appropriate equitable relief” in court.  After his employment ended, Santana brought a putative wage-and-hour class action that included a claim for penalties under the Private Attorneys General Act ("PAGA").  The trial court denied Studebaker’s motion to compel arbitration.  Inconsistencies among the three documents, the court held, demonstrated a lack of mutual assent.  The court also found the arbitration agreement unconscionable, pointing to a wholesale PAGA waiver in one document and, in the confidentiality agreement, provisions it viewed as unfairly favoring the employer.

The Court of Appeal reversed.  Because the three arbitration documents were executed at the same time and addressed the same subject, the court construed them together under Civil Code section 1642.  Civil Code 1642 states that, when several contracts between the same parties relate to the same matters, and are made as parts of substantially one transaction, they should be read together.  The court also emphasized that ambiguous agreements remain enforceable while only truly uncertain agreements, whose material terms cannot be ascertained at all, are void. 

Working through the purported conflicts, the court found that the documents were consistent on the applicability of the Federal Arbitration Act, that their differing procedures for selecting an arbitrator reflected alternative mechanisms rather than an absence of agreement to arbitrate, and that, in any event, Code of Civil Procedure section 1281.6 authorizes courts to appoint an arbitrator when parties cannot agree.  Citing HM DG, Inc. v. Amini, the court reiterated that the presence of options for selecting an arbitrator does not negate a clear intent to arbitrate.

The appellate court applied the same approach to the three agreements’ collective treatment of the PAGA claims.  Each of the three documents contained a class and collective action waiver that expressly carved out the representative PAGA claims.  One of the documents, however, also contained a separate all-caps provision purporting to waive the right to bring a PAGA action in any form.  That kind of wholesale waiver remains unenforceable under Iskanian, Viking River Cruises, Inc. v. Moriana, and Adolph v. Uber Technologies, Inc.  The court held that the appropriate response was to reconcile the provisions under Civil Code section 1642 and apply the severance clauses to excise the offending language, rather than allow the single overbroad provision to void the clear intent to arbitrate.  Severance, together with the FAA’s application to the agreement, required arbitration of the individual claims consistent with Viking River and Adolph, while the representative PAGA claims remained available to Santana in court, notwithstanding the invalid waiver.

The court also rejected the trial court’s determination as to unconscionability.  The confidentiality agreement did not require Santana to stipulate that any breach would cause irreparable harm, did not waive the bond requirement, and did not compel advance consent to an injunction, distinguishing it from the agreements found unconscionable in Silva v. Cross Country Healthcare, Inc. and Alberto v. Cambrian Homecare.  Preserving Studebaker’s right to seek “appropriate equitable relief” fell within the “margin of safety” recognized in Armendariz and Baltazar v. Forever 21, Inc.  Reading the confidentiality agreement together with the arbitration documents under Civil Code section 1642, the court held that Studebaker’s substantive claims against Santana, including claims for breach of confidentiality, remained subject to arbitration.  The confidentiality agreement simply preserved a narrow right to seek equitable relief in court alongside that arbitral remedy.

While Santana is a favorable decision for employers, it is not a license for poor drafting.  Arbitration agreements presented during onboarding should be reviewed for internal consistency, particularly with respect to PAGA language.  Moreover, while confidentiality provisions may preserve the employer’s ability to seek equitable relief in court, they should stop short of stipulated findings of irreparable harm, bond waivers, or advance consent to injunctions.  More broadly, Santana does not relax the standards applied to employer-drafted arbitration agreements, but it confirms that not all inconsistencies, particularly among layered onboarding documents, will defeat an otherwise enforceable agreement to arbitrate.

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