Esparza v. Sand & Sea, Inc., B268420

Citation2 Cal.App.5th 781,206 Cal.Rptr.3d 474
Decision Date22 August 2016
Docket NumberB268420
CourtCalifornia Court of Appeals
PartiesJanuary ESPARZA, Plaintiff and Respondent, v. SAND & SEA, INC., et al., Defendants and Appellants.

Telep Law, Desiree Telep, Irvine, Tina Dao for Plaintiff and Respondent.

Greenberg Traurig, Mark D. Kemple, Karin L. Bohmholdt and Nicholas A. Insogna, Los Angeles, for Defendants and Appellants.

COLLINS

, J.

INTRODUCTION

The question in this case is whether an arbitration provision in an employee handbook is legally enforceable. The employee handbook containing the arbitration provision included a welcome letter as the first page, which stated, [T]his handbook is not intended to be a contract (express or implied), nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees.” The employee signed a form acknowledging she had received the handbook, which mentioned the arbitration provision as one of the “policies, practices, and procedures” of the company. The acknowledgement form did not state that the employee agreed to the arbitration provision, and expressly recognized that the employee had not read the handbook at the time she signed the form. Under these circumstances, we find that the arbitration provision in the employee handbook did not create an enforceable agreement to arbitrate. We therefore affirm the trial court's denial of the employer's petition to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff and respondent January Esparza began employment at Shore Hotel on November 19, 2012. On her first day of work, Esparza was given an employee handbook. The first page of the handbook stated:

“Welcome to Shore Hotel!

We are excited to have you as a member of our team. At Shore Hotel, every team member plays a vital role in the success of our organization and we look forward to your many contributions.

* * *

“This handbook will give you both an overview and a better understanding of Shore Hotel and the core policies by which we operate.... You should never hesitate to ask questions or speak directly to your supervisor or the Human Resources department.

“This handbook replaces and supersedes all prior verbal descriptions, written policies and other written materials and memorandum [sic] that may have been distributed; unless otherwise notes [sic]. Employees should understand, however, that this handbook is not intended to be a contract (express or implied), nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees. [Emphasis added.] The Company reserves the right to revise, modify, delete, or add to any and all policies, procedures, work rules, or benefits stated in this handbook or in any other document at any time (except as to its at-will employment policy) without prior notice....

“Welcome aboard!”

We will refer to this page of the employee handbook as the “welcome letter.”

A section titled “Agreement to Arbitrate” spanned pages 3 and 4 of the employee handbook. Unlike the rest of the employee handbook, this section was printed in all capital letters, and it was written in the first person from the employee's perspective. The section began, “I further agree and acknowledge that the company and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context. Both the company and I agree that any claim, dispute, and/or controversy that either I may have against the company ... or the company may have against me ... shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act....” The section discussed the scope of disputes under the agreement, the qualifications for an arbitrator, and other procedural issues relating to arbitration. It continued, “I understand and agree to this binding arbitration provision, and both I and the company give up our right to trial by jury of any claim I or the company may have against each other.”

The handbook then explained employment basics such as the company anti-harassment policy, the attendance policy, the dress code, and payroll. The last two pages of the 52–page employee handbook consisted of identical copies of a “policy acknowledgement,” one labeled as the employer copy, and one labeled as the employee copy. The policy acknowledgement stated:

“This handbook is designed to provide information to employees of Sand & Sea, Inc. (Shore Hotel) regarding various policies, practices and procedures that apply to them including our Arbitration Agreement. Shore Hotel and its employees acknowledge that their relationship is ‘at will’ and that either party can terminate that relationship at any time for any reason. Shore Hotel reserves the right to modify, alter or eliminate any and all of the policies and procedures set forth herein at any time, for any reason, with or without notice. Neither this manual nor its contents constitute, in whole or in part, either an express or implied contract of employment with Shore Hotel or any employee . [Emphasis added.]

“While this handbook is not intended to state all of the conditions of employment and all of the principles which help to guide our people in the performance of their duties, it will give you general information in regard to certain policies and benefits related to your employment.

* * *

“I acknowledge that I have received Sand & Sea Inc.'s (Shore Hotel) Employee Handbook. I also acknowledge that I am expected to have read the Employee Handbook in its entirety no longer after one week after receiving it , and that I have been given ample opportunity to ask any questions I have pertaining to the contents of the employee handbook. I also understand that this Handbook is Company property and that it must be returned upon termination of my employment. I understand that failure to abide by these provisions may result in disciplinary action up to and including the termination of my employment.”

Esparza signed the policy acknowledgement on November 19, 2012, her first day of work. Esparza's employment with Shore Hotel ended on August 2, 2013. On July 8, 2014, Esparza filed a complaint against Shore Hotel; she later added Steve Farzam, identified as the owner of the hotel, as a defendant.

In her first amended complaint, which was the operative complaint below, Esparza alleged causes of action for sexual harassment, sex discrimination, wrongful termination, and intentional infliction of emotional distress.

On July 28, 2015, more than a year after Esparza first filed her complaint, defendants filed a petition to compel arbitration. Defendants argued that Esparza's claims arose from her employment at Shore Hotel, and “because Plaintiff signed her assent to a conspicuous and unambiguous agreement to arbitrate claims of the very type at issue here, arbitration is mandatory.” Defendants acknowledged that both parties had served discovery requests, and defendants' demurrer to the first amended complaint was pending before the court. With their motion, defendants submitted the entire employee handbook, including the welcome letter and the policy agreement signed by Esparza.

Esparza opposed defendants' petition to compel arbitration. She argued, “Ms. Esparza did not assent or agree to arbitration.... Ms. Esparza simply acknowledged that she received Shore Hotel's Employee Handbook, and she also acknowledged that she was to have read the Employee Handbook one week after receiving it.” Esparza also argued that the arbitration provision was procedurally and substantively unconscionable, and that defendants forfeited their right to demand arbitration by engaging in litigation for a year before seeking to enforce the arbitration provision.

In their reply, defendants argued that Esparza “freely agreed to arbitrate all disputes arising from her employment.” They argued that the policy acknowledgment Esparza signed “expressly incorporated the employment terms and conditions of employment [sic] set forth in the preceding pages.” Because Esparza had a week to review the handbook, defendants argued, she had the opportunity to “accept employment subject to [the handbook's] terms, or to seek employment elsewhere.” Defendants also argued that the terms of the employment agreement were not unconscionable, and that defendants' participation in the very early stages of litigation should not be deemed a forfeiture of their right to arbitrate.

The trial court denied defendants' petition. It held, in full, Defendants' motion to compel arbitration is denied. [¶] There is no agreement to arbitrate. [¶] The Policy Acknowledgement signed by plaintiff does not impose an obligation to arbitrate nor is the arbitration provision in the handbook incorporated by reference. To the contrary, the acknowledgement states that the handbook is not an employment agreement.”

Defendants timely appealed.

STANDARD OF REVIEW

There is a strong public policy favoring contractual arbitration, but that policy does not extend to parties who have not agreed to arbitrate. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc . (2010) 186 Cal.App.4th 696, 704, 111 Cal.Rptr.3d 876

(Molecular Analytical Systems ).) To establish a valid agreement to arbitrate disputes, [t]he petitioner bears the burden of proving the existence of a valid arbitration agreement by [a] preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Engalla v. Permanente Medical Group, Inc . (1997) 15 Cal.4th 951, 972, 64 Cal.Rptr.2d 843, 938 P.2d 903.) California law governs the determination as to whether an agreement was reached. (Rosenthal v. Great Western Fin. Securities Corp . (1996) 14 Cal.4th 394, 409–410, 58 Cal.Rptr.2d 875, 926 P.2d 1061 (Rosenthal ).) [W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the...

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