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Court of Appeal:

C.A. Won’t Sever Provisions in Problem Arbitration Agreement

On Remand From Supreme Court, Justices Decline to Excise Unconscionable Provisions of Employment Contract Where ‘Interests of Justice’ Counsel Against Enforcing Remainder

By Kimber Cooley, associate editor

Div. Four of this District’s Court of Appeal has held that severing unconscionable provisions from an arbitration agreement, provided by Charter Communications Inc. to its employees, in order to permit enforcement of the remainder of the contract is not warranted where multiple defects indicated a systemic effort to impose alternative dispute resolution on a weaker party and deleting the offending terms would effectively rewrite the contract.

The question arose on remand from the California Supreme Court, which, in an opinion filed on July 15 of last year, found that three provisions of the arbitration agreement at issue were unconscionable and ordered the matter returned to the Court of Appeal for an analysis of whether the offending provisions should be severed so that the rest of the contract could be enforced.

Severance is authorized under Civil Code §1670.5(a), which provides that “[i]f the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”

Challenge to Agreement

Challenging the agreement was Angelica Ramirez, a former Charter employee who sued the company for alleged discrimination, harassment, and retaliation under the Fair Employment and Housing Act (“FEHA”), codified at Government Code §12900 et seq. Charter moved to compel arbitration based on the agreement, which Ramirez signed as part of her onboarding process.

Los Angeles Superior Court Judge David Cowan denied the motion to compel based on a finding of unconscionability. In an opinion by then-Justice Thomas L. Willhite Jr. (now serving as an arbitrator for an alternative dispute outfit), Div. Four affirmed, saying “given that we have found the agreement permeated by significant unconscionable terms, a denial of severance is entirely reasonable.”

The high court agreed that three aspects of the agreement are substantively unconscionable—a provision providing carve-outs for certain types of claims which were more likely to be filed by the employer, a shortened window for filing a mandated written notice of the claim, and a clause allowing Charter to recover attorney fees for litigation surrounding a successful motion to compel arbitration.

However, Justice Carol Corrigan, who authored the opinion, declared:

“Here, we clarify that no bright line rule requires a court to refuse enforcement if a contract has more than one unconscionable term. Likewise, a court is not required to sever or restrict an unconscionable term if an agreement has only a single such term. Instead, the appropriate inquiry is qualitative….”

Presiding Justice Brian S. Currey authored Monday’s opinion in which he declared that “we conclude severing the unconscionable provisions would not further the interests of justice and, therefore, affirm the trial court’s refusal to enforce the agreement.”

He added that “the disposition remains unchanged from the disposition contained in our opinion filed February 18, 2022: ‘The trial court’s order denying Charter’s motion to compel arbitration is affirmed.’ ”

Justices Audrey B. Collins and Audra Mori joined in the opinion.

Factors for Consideration

Currey noted that the Supreme Court indicated that “courts may liberally sever any unconscionable portion of a contract and enforce the rest when: the illegality is collateral to the contract’s main purpose; it is possible to cure the illegality by means of severance; and enforcing the balance of the contract would be in the interests of justice.”

Turning to the Charter contract, the jurist remarked:

“[W]e are skeptical of Charter’s position that the first two criteria for severing the unconscionable provisions (i.e., the illegality is collateral to the contract’s main purpose, and it is possible to cure the illegality by means of severance) have been satisfied….Relying on the title of the Agreement (‘Mutual Arbitration Agreement’), it claims the central purpose is to ‘mutually arbitrate disputes “arising out of or relating to [Ramirez’s] pre-employment application and/or employment with Charter or the termination of that relationship.” ’…Based on the lack of mutuality in the covered and excluded claims provisions, it appears the real purpose of the agreement is to subject the employee to arbitration ‘as a means of maximizing employer advantage.’ ”

He continued:

“Second, Charter urges the unconscionable provisions can simply be severed without…augmentation of the agreement. We agree with Charter that the…filing time limits provision…and the…attorneys’ fees provision…can easily be deleted. But Section C (excluded claims provision) is more problematic. Section C specifically excludes 14 claims from arbitration. Although most of those claims are ones that are more likely to be brought by an employer against the employee…, Ramirez could bring some of those claims. By simply deleting Section C, thereby subjecting all 14 claims to arbitration, we would be effectively rewriting the Agreement to cover claims Ramirez did not agree to arbitrate. Courts cannot…[rewrite contracts to impose new terms.]”

Interests of Justice

The presiding justice said:

“[E]ven if we agreed with Charter that the unconscionable provisions are collateral to the contract’s main purpose and it is possible to sever those provisions, severance is still not warranted because ‘enforcing the balance of the contract would [not] be in the interests of justice.’….The multiple defects in the Agreement ‘indicate that the stronger party [Charter] engaged in a systematic effort to impose arbitration on the weaker party not simply as an alternative to litigation, but to secure a forum that works to the stronger party’s advantage.’ ”

Pointing to specific examples, Currey commented:

“Specifically, the Agreement impermissibly conveys the following to the employee: her claims are likely subject to arbitration, but claims likely to be brought by Charter against her are exempt from arbitration; she will potentially have to initiate arbitration of her FEHA claims before an administrative investigation can be conducted…; and, critically, she risks challenging the enforceability of the Agreement because even if some of her arguments are successful, she is still required to pay Charter’s attorneys’ fees and costs if the court ultimately compels arbitration.”

Under those circumstances, he opined that “mere severance of these provisions and enforcement of the remainder of the Agreement” could create perverse incentives for an employer to draft a one-sided arbitration contract because the document may never be challenged and, even if it is, a court may decide to simply delete any clauses it finds problematic.

He added:

“The Agreement’s severance clause does not change our conclusion….Based on the adhesive nature of the Agreement, we decline to permit the severance clause to dictate the outcome when, as here, severance of the unconscionable provisions would not further the interests of justice.”

The case is Ramirez v. Charter Communications Inc., 2025 S.O.S. 448.