Tal Eisenman v. Codex Health, Inc.

To determine “whether a valid contract to arbitrate exists,” courts apply “ordinary state law principles that govern contract formation.” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1093 [citations omitted]; see also Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170.)

Alternatively, Defendant argues the California Arbitration Act (“CAA”) governs the Arbitration Agreement. (Mtn. to Compel Arbitration at pp. 12:16-13:15.)

Code of Civil Procedure section 1281.2 provides: On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy in that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [¶] The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for rescission of the agreement . . . .

In determining the threshold question of whether an arbitration agreement exists between the parties, the court employs a three-step burden shifting analysis. (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755 (Iyere); see also Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060.)

The party seeking to compel arbitration bears the initial burden of showing an agreement to arbitrate.

If that burden is met, the burden shifts to the opposing party to show a factual dispute regarding the agreement’s existence.

If the opposing party does so, then the burden shifts back to the proponent of arbitration to show the existence of a valid agreement by a preponderance of the evidence. (Iyere, supra, 87 Cal.App.5th at p. 755.)

III. ANALYSIS

The parties entered into a valid agreement to arbitrate.

Plaintiff affixed her electronic signature to the Agreement on September 22, 2023. (Williams Decl., Ex. B at ¶ 7.)

“A party’s acceptance of an agreement to arbitrate may be express, as whether a party signs the agreement.” (Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 777.)

Moreover, “[u]nder Civil Code section 1633.7 . . . an electronic signature has the same legal effect as a handwritten signature.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060.)

The authenticity of an electronic signature may be established by detailing the “security precautions regarding transmission and use of an applicant’s unique username and password, as well as the steps an applicant would have to take to place his or her name on the signature line of the employment agreement.” (Id. at p. 1062.)

Plaintiff completed onboarding through Rippling, a password-protected online portal used by Codex to provide employees access to employment policies and onboarding documents. (Williams Decl. at ¶¶ 4, 7.)

Plaintiff accessed the portal by using a link sent to her email address to create a Rippling account and set a unique username and password. (Williams Decl. at ¶¶ 5, 7.)

Plaintiff was required to accept Rippling’s User Terms of Service Agreement, which expressly provides that: (1) the user agrees to conduct transactions electronically; (2) any electronic signature provided in the Rippling platform is the legal equivalent of the user’s handwritten signature; and (3) the user may withdraw consent to do business electronically at ay time. (Williams Decl. at ¶ 5, Ex. A.)

Plaintiff could access and view onboarding documents only after logging in with her unique credentials and accepting the User Terms of Service Agreement. (Ibid.)

Records show that Plaintiff accessed the Arbitration Agreement and clicked the e-sign button on September 22, 2023. (Williams Decl. at ¶¶ 4, 7.)

Defendant’s account of this process is sufficient to authenticate Plaintiff’s signature and establish an agreement to arbitrate between the parties.

The scope of the Agreement also covers Plaintiff’s claims.

The Agreement provides: This Agreement applies to claims Employee may bring against Worksite Employer or Rippling PEO for wrongful termination, discrimination, harassment, retaliation, breach of contract, wage and hour violations, and claims related to any services provided by Rippling PEO to Employee, whether directly or indirectly, and torts such as invasion of privacy, assault and battery, or defamation.

This Agreement also applies to claims that Worksite Employer or Rippling PEO might bring against Employee such as, for example, theft of money, or trade secrets, breach of a confidentiality Agreement, or breach of contract. (Williams Decl., Ex. B at ¶ 2.)

The Agreement goes onto to include “all disputes, whether based on tort, contract, statute” and enumerates specific statutes. (Ibid.)

Plaintiff’s claims are for wrongful termination, discrimination, and retaliation and thus expressly fall within the scope of the agreement.

However, Plaintiff does not truly dispute that she signed the Agreement or that the scope of the Agreement covers her claims.

Instead, she challenges the enforceability of the Agreement by arguing that it is unconscionable.

The party challenging a contractual arbitration provision bears the burden of proving that it is both procedurally and substantively unconscionable. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO).)

This may be done on a sliding scale, where the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required, and vice versa. (Id. at pp. 125-126.)

Nevertheless, both must be shown.

Procedural unconscionability focuses on oppression or surprise to the “weaker” party based on unequal bargaining power, whereas substantive unconscionability focuses on the terms of the agreement and whether they are overly harsh or one-sided. (OTO, supra, 8 Cal.5th at pp. 125- 129.)

The Court thus proceeds to consider whether the Agreement is procedurally and substantively unconscionable.

Procedural Unconscionability

The circumstances that the court examines to determine whether there was “oppression” in the signing of an agreement generally include: “ ‘(1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney.’” (OTO, supra, 8 Cal.5th at pp. 126-127 [quoting (Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1348].)

Here, Plaintiff was not subject to any time limit for reviewing the Arbitration Agreement. (Williams Decl. at ¶ 6; Reply at p. 3:15-17.)

She could log out of the online portal and log back in to review and sign the Agreement at any time. (Ibid.)

Although only three pages long, the Agreement is dense with legal jargon and statutory references that are difficult for a layperson to understand. (Willaims Decl., Ex. B [referring to the “National Relations Board”, the “Equal Employment Opportunity Commission”, “statute of limitations”, and “motion for summary judgment”].) (See OTO, supra, 8 Cal.5th at p. 128 [finding procedural unconscionability where the substance of the agreement was filled with statutory references and legal jargon].)

While Plaintiff was required to sign the Agreement as a condition of employment, “the cases uniformly agree that a compulsory predispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment or offered on a ‘take it or leave it’ basis.” (Lagatree v. Luce (1999) 74 Cal.App.4th 1105, 1127.) (Reply at p. 1:20-22.)

This type of contract of adhesion in the employment context adds a modest amount of procedural unconscionability and, the amount of procedural unconscionability is increased when the fact of an adhesion contract is combined with other issues. (See Nguyen v. Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 248.)

The Court finds that a moderate degree of procedural unconscionability exists given its presentation and adhesive nature.

Substantive Unconscionability

With regard to substantive unconscionability, As the Armendariz court explained, based on “the principle of nonwaivability of statutory civil rights in the workplace,” there are “five minimum requirements for the lawful arbitration of such rights pursuant to a mandatory employment arbitration agreement.

Such an arbitration agreement is lawful if it ‘(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.

Thus an employee who is made to use arbitration as a condition of employment “effectively may vindicate [his or her] statutory cause of action in the arbitral forum.’”’” (Armendariz, supra, 24 Cal.4th at p. 102.) (Mills v. Facility Solutions Group, Inc. (2022) 84 Cal.App.5th 1035, 1052.)

The Arbitration Agreement satisfies these factors.

The Agreement requires that the parties select an arbitrator by mutual agreement or submit to a process by which to select an arbitrator from a jointly provided list. (Williams Decl., Ex. B at ¶ 7.)

The Agreement incorporates the Federal Rules of Civil Procedure as well as the procedures of the CAA pertaining to discovery. (Ibid.)

The Agreement provides that the arbitrator shall issue a written award and may order all relief under California law. (Ibid.)

The Agreement further provides that Codex or Rippling PEO will pay the arbitrator’s fees and costs. (Williams Decl., Ex. B at ¶ 8.)

Plaintiff, however, argues that the Agreement is substantively unconscionable based on her reading of Cook v. University of Southern California (2024) 102 Cal.App.5th 312 (Cook).

In Cook, the Second District Court of Appeal upheld the trial court’s denial of a motion to compel arbitration because of the (1) broad scope of the agreement, (2) the infinite duration, and (3) the lack of mutuality in the claims that were covered by the agreement. (Cook, supra, 102 Cal.App.5th at p. 321.)

With respect to the broad scope, the agreement required the arbitration of “all claims” whether or not arising out of the employment relationship between the parties. (Ibid.)

The court noted that employment contracts can provide a “margin of safety” to the party with the superior bargaining power as long as there is a legitimate commercial need for doing so that is explained in the contract itself. (Cook, supra, 102 Cal.App.5th at p. 324.)

The agreement there did not explain the justification and the court held that the trial court did not err in holding that the broad scope was substantively unconscionable. (Id. at pp. 324-325.)

As for the infinite duration, the agreement purported to survive indefinitely following the employee’s termination unless modified by a written document signed by the president of the university. (Cook, supra, 102 Cal.App.5th at p. 325.)

The court held that this amounted to an express term of duration and did not establish that the agreement was terminable at will. (Ibid.)

The court upheld the trial court’s finding of substantive unconscionability on the grounds that plaintiff could be ordered to arbitrate any injuries she suffered related to USC or its related entities for the rest of her life. (Cook, supra, 102 Cal.App.5th at pp. 318, 325.)

Finally, the court found that the agreement lacked mutuality because the plaintiff was required to arbitrate any claims she had with USC’s related entities, but the related entities were not required to arbitrate their claims with her. (Id. at pp. 326-327.)

The court noted, “[t]he plain language of the arbitration agreement thus provides a significant benefit to USC’s related entities without any reciprocal benefit to Cook.” (Id. at p. 328.)

Plaintiff here argues the Arbitration Agreement to similar to the one in Cook and should be found substantively unconscionable. (Opposition at pp. 5:8-8:26.)

First, Plaintiff argues the Agreement is broad in scope in that it applies to “any claim and/or controversy” or “all disputes, whether based on tort, contract, statute . . .” (Id. at p. 6:3-26.)

However, paragraph 2 more specifically sets forth the nature of the claims that are covered by the Agreement and are tailored to those that may arise out of an employment relationship. (Williams Decl., Ex. B at ¶ 2; Reply at p. 4:24-27.)

The disclaimer above the signature line further provides that the Agreement applies to disputes arising out of the employment relationship:

EMPLOYEE UNDERSTANDS THAT THIS AGREEMENT REQUIRES THE EMPLOYEE AND WORKSITE EMPLOYER OR Rippling PEO TO ARBITRATE ANY AND ALL DISPUTES THAT ARISE OUT OF EMPLOYEE’S EMPLOYMENT WITH WORKSITE EMPLOYER, AND/OR RELATIONSHIP WITH RIPPLING PEO, EXCEPT AS SET FORTH HEREIN, AND THAT EMPLOYEE AND WORKSITE EMPLOYER OR RIPPLING PEO ARE GIVING UP THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY. BY SIGNING THIS PEO, ARBITRATION AGREEEMENT, EMPLOYEE CONFIRMS THE FACT THAT EMPLOYEE HAS READ, UNDERSTANDS, AND AGREES TO BE LEGALLY BOUND BY ALL OF THE ABOVE TERMS.

(Williams Decl., Ex. B at p. 3; Reply at pp. 2:19-25, 4:28-5:3.)

The Agreement here is narrower than the one at issue in Cook.

The Court does not find this to be a ground for finding substantive unconscionability.

Second, on the other hand, the Agreement is similar to the one in Cook in that it survives for an indefinite duration.

The Agreement provides, “[t]his Agreement shall survive termination of Employee’s employment relationship with Rippling.” (Williams Decl., Ex. B at ¶ 10.)

Although as Defendant notes, Rippling provides services to over 30,000 entities, the Agreement is nevertheless limited to claims arising out of the employment relationship between Plaintiff and Codex. (Declaration of Jarryd Cooper at ¶ 4; Reply at p. 6:19-20.)

Thus, the scope of the Agreement implicitly limits its duration to the length of the relationship between the parties and any disputes that arise therefrom during that time. (Ayala-Ventura v. Superior Court (2026) 119 Cal.App.5th 241, 257 [reiterating “the importance of context in determining unconscionability.”].)

The clause as construed with the entirety of the agreement, therefore, provides that Plaintiff must arbitrate her claims arising out of her employment even after termination.

The Court does not find this term to be substantively unconscionable either.

Finally, the Agreement is also similar to the one in Cook in that it requires Plaintiff to arbitrate her claims against third parties but not vice versa.

The Agreement provides: Employee’s agreement to arbitrate claims against Worksite Employer or Rippling PEO includes claims that Employee may bring against Worksite Employer’s or Rippling PEO’s respective parent, subsidiary, affiliated or client entities as well as owners, directors, officers, managers, employees, agents, brokers, contractors, attorneys, including in their capacity as benefit plan administrators or fiduciaries to any employee benefit plan of which Employee is a participant or beneficiary, and insurers of Worksite Employer or Rippling PEO (“Company Entities”).

Employee also agrees to arbitrate claims against any person or entity that Employee may allege to be a joint employer, joint enterprise, alter ego, or to have common ownership with Worksite Employer.

(Williams Decl., Ex. B at ¶ 2.)

The Agreement requires Plaintiff to arbitrate her claims against these Company Entities but does not require the Company Entities to do the same.

It thus confers a benefit on Defendant without any reciprocal benefit to Plaintiff.

The Agreement, therefore, lacks mutuality in this regard and is substantively unconscionable.

Since the Court has found at least one unconscionable term, the Court considers whether it can be severed from the Agreement.

Severability

“[W]hether to sever is within the trial court’s discretion.” (Navas v. Fresh Venture Foods, LLC (2002) 85 Cal.App.5th 626, 636-637.)

“ ‘In deciding whether the sever terms rather than to preclude enforcement of the provision altogether, the overarching inquiry is whether the interests of justice would be furthered by severance; the strong preference is to sever unless the agreement is “permeated” by unconscionability.’ [Citation.] [¶] An agreement to arbitrate is considered ‘permeated’ by unconscionability where it contains more than one unconscionable provision. [Citation.] ‘Such multiple defects indicate a systemic effort to impose arbitration on [the nondrafting party] not simply as an alternative to litigation, but as an inferior forum that works to the [drafting party’s] advantage.’ [Citation.]

An arbitration agreement is also deemed ‘permeated’ by unconscionability if ‘there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement.’ [Citation.] If ‘the court would have to in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms,’ the court must void the entire agreement.” (Mango v. The College Network, Inc. (2016) 1 Cal.App.5th 277, 292.) (De Leon v. Pinnacle Property Management Services, LLC (2021) 72 Cal.App.5th 476, 492- 493.)

Defendant argues the Court can sever the provision concerning the Company Entities without affecting the other terms or altering the meaning of the Agreement. (Mtn. to Compel Arbitration at pp. 17:10-18:10.)

Plaintiff relies again on Cook to argue the terms cannot be severed because unconscionability permeates the agreement. (Opposition at pp. 9:25-10:13.)

In Cook, the court affirmed the trial court’s judgment on severability because it was based on the fact that multiple provisions were unconscionable and that the central purpose of the agreement was for the parties to arbitrate all disputes with each other for an indefinite period of time, including those against third parties. (Cook, supra, 102 Cal.App.5th at pp. 328-330.)

Here, the Court has only found a single provision unconscionable.

The purpose of the Agreement differs in that it is for the parties to arbitrate disputes arising out of the employment relationship and for the duration of that relationship.

Severance of the provisions relating to Company Entities will not change that central purpose or significantly alter the Agreement such that the Court would be re-writing it.

Accordingly, the Court severs reference to the Company Entities in paragraphs 1 and 2, such that the Agreement only requires an agreement to mutually arbitrate between Plaintiff, Defendant, and Rippling PEO.

For these reasons, the Court GRANTS the Motion to Compel Arbitration.

This action is hereby STAYED pending the outcome of arbitration. (Code Civ. Proc. § 1281.4; 9 U.S.C. § 3.)

IV. CONCLUSION

The Court GRANTS the Motion to Compel Arbitration.

This action is STAYED pending the outcome of arbitration.

The Court will prepare the order - oo0oo -