Unreported / Non-Citable
Background
Alma Rossio Zamarripa Solorio and her daughter Melissa Viviana Covarrubias, native Spanish speakers with limited English comprehension, signed a Unit Franchise Agreement with SBS in March 2020 as shareholders, owners, or partners of Melross Maintenance Services to provide cleaning services. The agreement was written in English; when the women asked for a Spanish copy, SBS representatives told them not to worry because it did not say anything important, and later said no Spanish version was available. The arbitration provision was buried on page 26 of the 32-page contract, printed in the same typeface as the rest of the agreement, while other provisions were highlighted in bold and capitalized.
In 2024, Solorio and Covarrubias sued SBS Franchising, LLC and its wholly owned subsidiary SBS Services Group, LLC under the Private Attorneys General Act, alleging that SBS willfully misclassified its cleaners as independent contractor franchisees when they were actually employees entitled to Labor Code protections. SBS moved to compel arbitration under the franchise agreement's arbitration provision. The trial court denied the motion, finding the provision both procedurally and substantively unconscionable and that its unconscionable terms could not be severed. SBS appealed.
The Court’s Holding
The Court of Appeal first rejected SBS's argument that the question of the arbitration provision's enforceability was delegated to the arbitrator. The court found the delegation language was at best ambiguous: it referenced the validity of the franchise agreement generally and the arbitrability of 'any claim,' but did not clearly and unmistakably delegate the distinct question of the arbitration provision's own enforceability to the arbitrator. The court distinguished the more explicit delegation clauses in the cases SBS cited.
On the merits, the court applied the standards of Ramirez v. Charter Communications, Inc. and Armendariz v. Foundation Health Psychcare Services, Inc. Because the plaintiffs' complaint alleged they were misclassified as independent contractors and were instead employees, the court held the employment-law unconscionability framework applied despite the franchise label, given the unequal bargaining power between the parties. The court found a relatively high level of procedural unconscionability: no Spanish translation was provided despite requests, the provision was hidden near the end of a lengthy document without highlighting or an initialing requirement, SBS did not provide the AAA commercial rules or disclose arbitration costs, and the plaintiffs faced acute economic pressure during the pandemic.
The court also found multiple substantively unconscionable terms: a one-sided damages waiver excluding PAGA civil penalties, a one-sided limitation shielding SBS's officers, directors, agents, and affiliates from liability while plaintiffs as principals of Melross could be sued, arbitration fees exceeding civil court costs, a shortened one-year limitations period, carve-outs letting SBS litigate its most likely claims in court while forcing franchisees to arbitrate, and asymmetric fee-shifting contrary to PAGA's one-way fee provision. Finally, the court held the trial court did not abuse its discretion in declining to sever the unconscionable terms, because the agreement was permeated by unconscionability and severance would require rewriting the contract and would incentivize employers to draft one-sided provisions.
Key Takeaways
- A delegation clause must clearly and unmistakably delegate the question of the arbitration agreement's own enforceability to the arbitrator; general language about the validity of the underlying contract or the arbitrability of 'any claim' is insufficient.
- Failing to provide a Spanish translation of an arbitration agreement to parties with limited English comprehension, particularly when they request one and are told none exists, supports a finding of procedural unconscionability.
- Arbitration provisions in franchise agreements are evaluated under employment unconscionability standards when the workers allege misclassification as independent contractors and the relationship involves unequal bargaining power.
- One-sided damages limitations, one-sided liability limitations, fees exceeding court costs, shortened statutes of limitations, carve-outs for the stronger party's likely claims, and asymmetric fee-shifting are substantively unconscionable terms that can render an arbitration agreement unenforceable.
- A trial court does not abuse its discretion by refusing to sever unconscionable terms when the agreement is permeated by unconscionability and severance would require reformation or would encourage one-sided drafting.
Why It Matters
Although unpublished and not citable, the decision applies California's unconscionability doctrine to a franchise arbitration clause where the workers alleged misclassification, making clear that contractual labels do not insulate arbitration provisions from employment-law scrutiny when the substance of the relationship involves unequal bargaining power.
The ruling also provides guidance on delegation clauses, emphasizing that general language about arbitrating disputes over a contract's validity does not clearly and unmistakably delegate the distinct question of the arbitration provision's own enforceability. And the court's affirmance of the refusal to sever sends a strong message that courts need not excise multiple one-sided terms from a permeated agreement, especially where severance would require rewriting the contract.