Harris v. TAP Worldwide, LLC

Filed 6/22/16

CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

DWAYNE HARRIS, B262504

Plaintiff and Respondent, (Los Angeles County

Super. Ct. No. TC027966)

v.

TAP WORLDWIDE, LLC, et al.,

Defendants and Appellants.

APPEAL from an order of the Superior Court of Los Angeles County, William P.

Berry, Judge. Reversed.

Fernald Law Group, Rachel D. Stanger, Brandon C. Fernald and Gina McCoy for

Defendants and Appellants.

Cummings & Franck, Scott O. Cummings and Lee Franck for Plaintiff and

Respondent.

*

Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is

certified for publication with the exception of part III(C).

I. INTRODUCTION

Defendants, TAP Worldwide, LLC, Eddie Rivera and Alex Dominguez, appeal

from an order denying their motion to compel arbitration. Plaintiff, Dwayne Harris, filed

a complaint against defendants alleging wrongful termination and violations of the Fair

Employment and Housing Act and the Labor Code. Defendants moved to compel

arbitration relying upon an arbitration agreement which plaintiff acknowledged receiving.

Plaintiff asserted there was no arbitration agreement and alternatively argued any

agreement was unconscionable. Defendants’ motion to compel arbitration was denied.

Defendants assert the trial court erred because the arbitration agreement attached

as Appendix A to the Employer Handbook is enforceable. The undisputed facts

demonstrate: there is a valid arbitration agreement; the agreement to arbitrate is not

illusory; and, as discussed in the unpublished part of our opinion, the arbitration

agreement is not unconscionable to the degree that it is unenforceable. Accordingly, we

reverse the order under review.

II. BACKGROUND

A. Plaintiff’s Complaint

On October 10, 2014, plaintiff filed his complaint. Plaintiff alleges he was

employed by TAP Worldwide, LLC which utilizes the fictitious business name of 4

Wheel Parts Performance Center at a warehouse located in Compton, California. Mr.

Rivera was the warehouse manager for TAP Worldwide, LLC. Mr. Dominguez was the

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lead for the department and a supervisor and manager for TAP Worldwide, LLC.

Plaintiff is African-American.

Plaintiff alleges racial discrimination, harassment and retaliation towards himself

and other African-American employees by defendants. Plaintiff alleges he and other

employees were denied meal and rest breaks and overtime pay and other Labor Code

violations. Plaintiff is married and requested leave under the California Family Rights

Act due to the serious health condition of a family member. TAP Worldwide, LLC

denied him his Family Rights Act rights and his requested time off. Plaintiff alleges Mr.

Dominguez used a forklift in an unsafe manner. Mr. Dominguez pushed plaintiff with a

forklift. This occurred while plaintiff was operating another unidentified vehicle.

Plaintiff reported these health and safety issues to TAP Worldwide, LLC. TAP

Worldwide, LLC terminated plaintiff’s employment on December 18, 2013.

Plaintiff brought 12 causes of action: racial discrimination in violation of the Fair

Employment and Housing Act ; marital status discrimination and retaliation in violation

of the Fair Employment and Housing Act ; association discrimination and retaliation in

violation of the Fair Employment and Housing Act ; interference with California Family

Rights Act rights and retaliation ; retaliation for opposing practices forbidden by the Fair

Employment and Housing Act ; hostile work environment in violation of the Fair

Employment and Housing Act ; violation of Labor Codes sections 233 and 234 for denial

of kin care ; wrongful termination in violation of public policy ; non-payment of wages,

including overtime, in violation of the Division of Labor Standards Enforcement and the

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Labor Code ; failure to provide meal and rest breaks in violation of the Labor Code ;

intentional severe emotional distress infliction ; and failure to do everything reasonably

necessary to prevent discrimination, harassment and retaliation in violation of the Fair

Employment and Housing Act. Plaintiff sought as relief damages, costs of suit including

attorney fees, lost wages, declaratory relief, waiting time penalties, and other injunctive

and equitable relief.

B. Defendants’ Motion to Compel Arbitration

On November 17, 2014, defendants moved to compel arbitration. Defendants

relied on three documents: the Employee Handbook; the Current Employment

Alternative Dispute Resolution Policy (the arbitration agreement); and the “CURRENT

EMPLOYMENT ALTERNATIVE DISPUTE RESOLUTION AGREEMENT”

which was attached as Appendix A to the Employee Handbook. Plaintiff acknowledged

in writing receiving the Employee Handbook with the attached arbitration agreement on

September 16, 2012, when he became an employee of TAP Worldwide, LLC. He had

previously worked at TAP Worldwide, LLC but as an employee of a temporary

employment service. The written acknowledgement states: “ACKNOWLEDGEMENT

OF RECEIPT [¶] I hereby confirm and acknowledge receipt of [defendant’s]: [¶] []

Alternative Dispute Resolution Agreement for current employees; and [] Personnel

Policy Handbook.” The parties do not dispute that the Personnel Policy Handbook is the

Employee Handbook. Plaintiff declared he actually signed the acknowledgement of

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receipt of the documents on September 16, 2012, but the year was erroneously listed as

2010.

Page one of the Employee Handbook states, “It is each employee’s responsibility

to read, understand and follow the provisions of this Handbook; accordingly, you will

find it to your advantage to read promptly the entire Handbook.” Page nine of the

handbook is entitled, “MANDATORY ALTERNATIVE DISPUTE RESOLUTION

BINDING ARBITRATION OF CLAIMS.” Page nine of the employee handbook then

states: “The Company has adopted mandatory binding arbitration as a means of dispute

resolution regarding any and all employment related claims that may exist between the

Company and an employee, and vice versa. Confirmation of receipt and agreement to

this policy is an absolute prerequisite to your hiring by, and continued employment with,

the Company. [¶] Under this policy, should any employment related dispute arise

between you and the Company, for whatever reason, both you and the Company will be

required to resolve the dispute through binding arbitration. This means that neither you

nor the Company can file a civil lawsuit against the other to seek redress for any

employment related grievances. [¶] Binding arbitration has proven itself to be a highly

useful and cost effective means to resolving disputes which may arise between employer

and employee. We hope that through this policy, any claims that may arise between you

and the Company can be resolved quickly, efficiently and to the satisfaction of everyone

involved. [¶] For a complete summary of the Company’s policy on mandatory binding

arbitration, please see Appendix A to this Handbook, as well as the Agreement to

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Arbitrate, a copy of which you will be required to execute prior to employment with the

Company. [¶] If, for any reason, an applicant fails to execute the Agreement to Arbitrate

yet begins employment, that employee will be deemed to have consented to the

Agreement to Arbitrate by virtue of receipt of this Handbook.”

Appendix A to the Employee Handbook is entitled: “CURRENT

EMPLOYMENT ALTERNATIVE DISPUTE RESOLUTION AGREEMENT.”

The introduction to the alternative dispute agreement begins, “In consideration of TAP

WORLDWIDE, LLC (‘the Company’) continuing to offer you (‘Employee’) gainful

employment as an at-will employee (sometimes collectively referred to as ‘The Parties’

or individually as ‘Each Party’), and in consideration of Employee continuing to accept

said at-will employment with the Company, the Company hereby offers and adopts the

following terms and conditions for Employee’s continued employment. . . .” Paragraph 1

of the arbitration agreement states: “Covered Claims: Each Party will hereby submit to

binding arbitration, and waive any and all rights to civil trial, any dispute, claim or

controversy arising out of or in any way connected with any dispute relating to the terms

and/or conditions of employment which includes, but is not limited to: [¶] (a) Any and

all claims arising under either federal or state law, including but not limited to claims

arising under Title VII of the Civil Rights Act (federal), Equal Pay Act (federal),

Americans with Disabilities Act (federal), Age Discrimination in Employment Act

(federal), Fair Labor Standards Act (federal), Families with Medical Leave Act (federal),

Labor Management Relations Act (federal), Employee Retirement Income Security Act

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(federal), Fair Employment and Housing Act (state), and the Unfair Business Practices

Act (state), as well as any and all claims under federal and/or state law involving law

against discrimination, including but not limited to discrimination based on race, sex,

sexual orientation, gender, religion, national origin, age, marital status, handicap (actual

or perceived), disability (actual or perceived) and/or harassment on any of the foregoing

grounds; and [¶] (b) Any and all claims arising under either contract or tort principals,

including but not limited to claims for breach of contract (oral or written), breach of

implied covenant of good faith and fair dealing, negligent and/or intentional infliction of

emotional distress, wrongful termination in violation of statute (see para. (a) above),

wrongful termination in violation of common law, wrongful termination in violation of

public policy, retaliation (related to provision of workers’ compensation benefits,

exercise of a statutory right (see para. (a) above) or otherwise) and/or fraud. [¶] Each

Party hereby recognizes and acknowledges that the foregoing paragraphs are meant to be

only illustrative and not exhaustive as to the nature and type of all employment related

disputes which will be subject to binding arbitration upon implementation of this

Agreement. [¶] Each Party will also hereby submit to binding arbitration any dispute,

claim or controversy arising out of or in any way connected with any dispute relating to

the interpretation and/or meaning of any term contained within this Agreement or the

enforceability and/or scope of this Agreement.” It is undisputed plaintiff’s causes of

action would all fall within the scope of the arbitration agreement if it is enforceable.

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Defendants also argued in the trial court the arbitration agreement specifically

provided that plaintiff is deemed to have voluntarily consented to arbitration by

continuing his employment. Paragraph 10 of the arbitration agreement provides: “If

Employee voluntarily continues his/her employment with TAP [Worldwide, LLC] after

the effective date of this Policy [or January 1, 2010], Employee will be deemed to have

knowingly and voluntarily consented to and accepted all of the terms and conditions set

forth herein without exception. This Policy shall continue in effect indefinitely, except

that TAP [Worldwide, LLC] may modify and/or terminate this Policy as to future

disputes or claims to the extent necessary or desired so to comply with any future

developments or changes in the law. Thirty (30) days written notice will be provided by

TAP [Worldwide, LLC] prior to the effective date of any such modification and/or

termination of this Policy. Any such modification and/or termination of this Policy shall

only be effective with respect to any dispute or claim arising after the effective date of the

modification and/or termination.”

C. Plaintiff’s Arguments

In the trial court, plaintiff argued there was no valid arbitration agreement because

he did not sign any such agreement. Plaintiff asserted he only acknowledged receipt of

documents. Plaintiff cited the Employee Handbook which referred to a document called

an “Agreement to Arbitrate.” Plaintiff declared he never received nor signed any

“Agreement to Arbitrate.” Plaintiff contended in the trial court that acknowledging

8

receipt of the Employee Handbook was insufficient to demonstrate an agreement to

arbitrate.

Plaintiff also asserted a provision in the Employee Handbook rendered the

arbitration agreement illusory and unenforceable. Plaintiff cited a document attached to

the Employee Handbook entitled “ACKNOWLEDGEMENT AND RECEIPT OF

EMPLOYEE HANDBOOK,” which provided, “I understand that except for the

‘employment at-will’ relationship, any and all policies, practices, and benefit programs

which are described in this [Employee] Handbook can be changed, modified,

supplemented, revised or rescinded at any time by the Company, in a writing issued by

the Human Resources Manager or signed by an officer of the Company, with or without

prior notice to me.”

Plaintiff alternatively argued any arbitration agreement was unconscionable.

Plaintiff declared he was never informed there was an arbitration agreement. Plaintiff

also argued the terms were unfairly one-sided because the agreement could be rewritten

by TAP Worldwide, LLC without notice, as stated above.

C. Trial Court’s Ruling

On January 8, 2015, the hearing was held on defendants’ motion to compel

arbitration. On February 20, 2015, the trial court issued a minute order denying

defendants’ motion. Defendants did not request a statement of decision pursuant to Code

of Civil Procedure section 1291. Defendants subsequently appealed the court’s order.

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III. DISCUSSION

A. Existence of Arbitration Agreement

California law favors enforcement of valid arbitration agreements. (Armendariz v.

Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97 (Armendariz);

Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1074.) Because arbitration is a

contractual matter, a party who has not agreed to arbitrate a controversy cannot be

compelled to do so. (Grey v. American Management Services (2012) 204 Cal.App.4th

803, 808; Sparks v. Vista Del Mar Child and Family Services (2012) 207 Cal.App.4th

1511, 1518 (Sparks).) When the material facts are undisputed, we determine the

existence of an agreement to arbitrate de novo. (Casas v. Carmax Auto Superstores Cal.

LLC (2014) 224 Cal.App.4th 1233, 1235 (Casas, hereafter); Sparks, supra, 207

Cal.App.4th at p. 1519.) The party seeking arbitration bears the initial burden of

demonstrating the existence of an arbitration agreement. (Pinnacle Museum Tower Assn.

v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle);

Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972; Sparks, supra,

207 Cal.App.4th at p. 1518.) Once the moving party has satisfied its burden, the litigant

opposing arbitration must demonstrate grounds which require that the agreement to

arbitrate not be enforced. (Pinnacle, supra, 55 Cal.4th at p. 236; Engalla v. Permanente

Medical Group, Inc., supra, 15 Cal.4th at p. 972; Sparks, supra, 207 Cal.App.4th at p.

1518.)

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Our colleague, Presiding Justice Ignazio J. Ruvolo of Division Four of the First

Appellate District, succinctly explained the controlling principles of appellate review we

are to apply: ‘“In California, “[g]eneral principles of contract law determine whether the

parties have entered a binding agreement to arbitrate.” [Citations.]’ (Pinnacle[, supra,

55 Cal.4th at p. 236].) ‘An essential element of any contract is the consent of the parties,

or mutual assent.’ [Citation.] (Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 270

(Donovan ).) Further, the consent of the parties to a contract must be communicated by

each party to the other. (Civ. Code, § 1565, subd. 3.) ‘Mutual assent is determined under

an objective standard applied to the outward manifestations or expressions of the parties,

i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions

or understandings.’ [Citation.] (Alexander v. Codemasters Group Limited (2002) 104

Cal.App.4th 129, 141, disapproved on other grounds in Reid v. Google, Inc. (2010) 50

Cal.4th 512, 524.) Because there are no facts in dispute, the existence of a contract is a

question we decide de novo. (Sparks[, supra, 207 Cal.App.4th at p. 1519].)” (Serafin v.

Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 173 (Serafin).)

Defendants assert plaintiff agreed to the arbitration agreement when he

acknowledged receiving the written agreement and began working as a permanent

employee. Here, it is undisputed plaintiff acknowledged receipt of both the arbitration

agreement and the Employee Handbook prior to his commencing employment with TAP

Worldwide, LLC. Plaintiff expressly acknowledged such in writing. It is also undisputed

the arbitration agreement states in Paragraph 10, “If Employee voluntarily continues

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his/her employment with TAP [Worldwide, LLC] after the effective date of this Policy,

Employee will be deemed to have knowingly and voluntarily consented to and accepted

all of the terms and conditions set forth herein without exception.” The Employee

Handbook provides, “If for any reason, an applicant fails to execute the Agreement to

Arbitrate yet begins employment, that employee will be deemed to have consented to the

Agreement to Arbitrate by virtue of receipt of this Handbook.” Based on the

uncontroverted language in the Employee Handbook and the arbitration agreement,

plaintiff consented to arbitrate his claims when he began and continued working for TAP

Worldwide, LLC.

Plaintiff asserts that under Sparks, supra, acknowledgment of receiving the

Employee Handbook was insufficient to demonstrate a valid arbitration agreement

existed. In Sparks, the plaintiff received a handbook for which he acknowledged receipt.

(Sparks, supra, 207 Cal.App.4th at p. 1516.) This division held: “The Handbook, which

was ‘distributed’ to all employees, included in one of many clauses an arbitration clause

not prominently distinguished from the other clauses. The arbitration provision is not

specifically highlighted, and there is no place for the employee to acknowledge it in

writing. . . . [¶] A relevant case in California is Mitri v. Arnel Management Co. (2007)

157 Cal.App.4th 1164 (Mitri), which, as here, involved an employee handbook stating

that ‘“[a]ny dispute arising out of employment with the Company, as allowed by law, will

be settled by binding arbitration.”’ (Id. at p. 1167.) The court held that the employer did

not establish the employee’s consent to binding arbitration of claims arising out of the

12

employment relationship because the handbook also stated that ‘“[a]s a condition of

employment, all employees are required to sign an arbitration agreement,’” and further

stated that ‘“[e]mployees will be provided a copy of their signed arbitration agreement.”’

(Id. at pp. 1167, 1168.) According to the court in Mitri, these two provisions indicated an

intent to have employees sign a separate arbitration agreement, which the employee in

that case did not sign. (Id. at pp. 1170-1171.) The court said that the acknowledgment of

receipt form signed by employees did not constitute evidence of an employee’s

acquiescence to the arbitration agreement provision in the employee handbook because

the acknowledgment form relegated the employee handbook’s status to ‘“an excellent

resource for employees with questions about the Company.’” (Id. at p. 1173.) The court

further stated that the employee handbook was ‘“designed to acquaint new employees . . .

with Human Resource policies, operational issues, employee services, and benefits that

reflect the desire to provide a professional work environment.’” (Ibid.) The court noted

that the acknowledgment of receipt form made no reference to an agreement by the

employee to abide by the handbook’s arbitration provision. (Ibid.) Although Mitri is

distinguishable from the instant case, its observations as to the purpose of an employee

handbook and the significance of the acknowledgment form are applicable to the

Handbook and acknowledgment form here. (See also Romo v. Y-3 Holdings, Inc. (2001)

87 Cal.App.4th 1153, 1159-1160; Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th

771, 804-805.) [¶] The language in the Handbook here, as the language at issue in Mitri,

supra, 157 Cal.App.4th 1164, suggests that the Handbook, which was ‘distributed’ to all

13

employees, was informational rather than contractual. Thus, because defendant failed to

point out or call attention to the arbitration requirement in the Acknowledgment, plaintiff

should not be bound to arbitrate.” (Id. at pp. 1519-1520.)

Plaintiff asserts that like the employee in Sparks, defendants failed to sufficiently

call attention to the arbitration requirement in the acknowledgement. Thus, plaintiff

argues he should not be required to arbitrate his claims. Sparks is materially

distinguishable on two specific grounds.

First, the acknowledgement form which plaintiff signed included acknowledging

receiving both the Employee Handbook and the attached arbitration agreement. Unlike

the situation in Sparks, the arbitration agreement here was specifically highlighted in the

signed acknowledgement form as the Appendix to the Employee Handbook. Moreover,

the first page of the Employee Handbook’s table of contents refers the reader to page nine

with the subject heading of “BINDING ARBITRATION OF CLAIMS.” The

obligation to arbitrate is highlighted at the top of page nine in bold underscored letters

and reference is expressly made to Appendix A of the Employee Handbook. And page

nine states without equivocation that receipt and agreement to the mandatory arbitration

policy is “an absolute prerequisite” to hiring and continued employment. Further, page

nine states, “If, for any reason, an applicant fails to execute the Agreement to Arbitrate

yet begins employment, that employee will be deemed to have consented to the

Agreement to Arbitrate by virtue of receipt of this Handbook.”

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In his declaration, plaintiff admits that the Employee Handbook contains

Appendix A but denies ever signing an agreement to arbitrate. In addition, plaintiff’s

declaration states that he had no idea there was an arbitration provision when he received

the Employee Handbook The fact that defendant either chose not to read or take the time

to understand these provisions is legally irrelevant. (See, e.g., Pinnacle, supra, 55

Cal.4th at p. 226 [“An arbitration clause within a contract may be binding on a party even

if the party never actually read the clause.”]; Madden v. Kaiser Foundation Hospitals

(1976) 17 Cal.3d 699, 710 [general rule is one who assents to a contract is bound by its

provisions and cannot complain of unfamiliarity with the language]; Brookwood v. Bank

of America (1996) 45 Cal.App.4th 1667, 1674 [reasonable diligence requires reading of

contract before signing].)

Second, an agreement to arbitrate may be express or implied so long as it is

written. After restating the hard and fast rule that general contract law determines the

enforceability of an arbitration agreement, our colleagues in Division One of our

appellate district held: “This means that a party’s acceptance of an agreement to arbitrate

may be express (e.g., Mago v. Shearson Lehman Hutton Inc. (9th Cir. 1992) 956 F.2d

932 [agreement to arbitrate included in job application]; Nghiem v. NEC Electronic, Inc.

(9th Cir. 1994) 25 F.3d 1437 [agreement to arbitrate included in handbook executed by

employee]; Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105

[employer may terminate employee who refuses to sign agreement to arbitrate]) or

implied-in-fact where, as here, the employee’s continued employment constitutes her

15

acceptance of an agreement proposed by her employer (Asmus v. Pacific Bell (2000) 23

Cal.4th 1, 11 [implied acceptance of changed rules regarding job security] [Asmus];

DiGiacinto v. Ameriko-Omserv Corp. (1997) 59 Cal.App.4th 629, 635 [implied

acceptance of changed compensation rules]).” (Craig v. Brown & Root, Inc. (2000) 84

Cal.App.4th 416, 420.)

Here, plaintiff was offered employment on an at will basis under the terms of the

Employee Handbook. Plaintiff unequivocally accepted the offer of employment by

commencing to work for TAP Worldwide,LLC for which he was paid. Plaintiff’s

commencement of performance under the Employee Handbook constituted assent to its

terms. Under California law, assent to an offer can occur either by way of performance

under the contract or the acceptance of consideration. (Civ. Code, § 1584 [“Performance

of the conditions of a proposal, or the acceptance of the consideration offered with a

proposal, is an acceptance of the proposal.”]; Davis v. Jacoby (1934) 1 Cal.2d 370, 378

[‘“Performance of the conditions of a proposal, . . . is an acceptance of the proposal.”’];

Estate of Klauenberg (1973) 32 Cal.App.3d 1067, 1070 [“Performance and acceptance of

the consideration constitute . . . modes of acceptance.”]; Blaustein v. Burton (1970) 9

Cal.App.3d 161, 183 [“‘“[The] acceptance of the consideration offered with a proposal, is

acceptance of the proposal”’”].) And page nine of the Employee Handbook expressly

addressed the effect of an employee’s failure to execute the attached arbitration

agreement. According to page nine, upon commencing employment, the employee was

deemed to have consented to the agreement to arbitrate by virtue of acceptance of the

16

Employee Handbook. Plaintiff cannot have it both ways, acceptance of the at will job

offer with all its emoluments and no responsibility to abide by one of its express

conditions.

Neither these contractual terms nor this scenario were present in Sparks.

Accordingly, defendants have demonstrated Tap Worldwide,LLC and plaintiff entered

into an arbitration agreement. Given the foregoing analysis we need not discuss the

effect of Civil Code section 1584 which states, “Performance of the conditions of a

proposal, or the acceptance of the consideration offered with a proposal, is an acceptance

of the proposal.” Further, we need not address those cases which hold that when an

employee signs an acknowledgment of receipt of an employee handbook, she or he is

bound by its contents. And this includes an agreement to arbitrate contained within the

employee handbook. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th

1199, 1215 [acknowledgement referred to arbitration provision in employee handbook]

(24 Hour Fitness); Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co.

(1992) 6 Cal.App.4th 1266, 1271-1272 [party bound by incorporation of a contract into a

performance bound]; Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1972) 24

Cal.App.3d 35, 41 [broker’s signature on application that referred not to arbitration but to

exchange rules which contained an agreement to arbitrate disputes]; Gear v. Webster

(1968) 258 Cal.App.2d 57, 61 [realtor who agreed to abide by association bylaws bound

by arbitration agreement contained therein]; see Adajar v. RWR Homes, Inc. (2008) 160

Cal.App.4th 563, 569; Knight et al., Cal. Practice Guide: Alternative Dispute Resolution

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(The Rutter Group 2015) ¶ 5:18, pp. 5-12 to 5-13.) Here, page nine of the Employee

Handbook expressly addresses the situation where an employee fails to execute the

arbitration agreement and accepts employment. Given this specific contractual language,

this is a stronger case for finding an agreement to arbitrate than the immediately

foregoing incorporation by reference cases.

B. The Arbitration Agreement Was Not Illusory

Plaintiff also argues the arbitration agreement was illusory because it could be

modified by TAP Worldwide, LLC unilaterally. In order for a contract to be valid, the

parties must exchange promises that represent legal obligations. (Bleecher v. Conte

(1981) 29 Cal.3d 345, 350; Scottsdale Ins. Co. v. Essex Ins. Co. (2002) 98 Cal.App.4th

86, 94-95.) A contract is unenforceable as illusory when one of the parties has the

unfettered or arbitrary right to modify or terminate the agreement or assumes no

obligations thereunder. (Asmus, supra, 23 Cal.4th at pp. 15-16; Scottsdale Ins. Co. v.

Essex Ins. Co., supra, 98 Cal.App.4th at p. 95; Principal Mutual Life Ins. Co. v. Vars,

Pave, McCord & Freedman (1998) 65 Cal.App.4th 1469, 1488-1489; Fabbro v. Dardi &

Co. (1949) 93 Cal.App.2d 247, 251.) Also, a contract is illusory where one party

provides no legal consideration. (See Martin v. World Sav. & Loan Assn. (2001) 92

Cal.App.4th 803, 809.) The Employee Handbook broadly provides that TAP Worldwide,

LLC can unilaterally modify any of its policies, which would include the arbitration

agreement, without notice: “I understand that except for the ‘employment at-will’

relationship, any and all policies, practices and benefit programs which are described in

18

this Handbook can be changed, modified, supplemented, revised or rescinded at any time

by the Company, in a writing issued by the Human Resources Manager or signed by an

officer of the Company, with or without prior notice to me.” Plaintiff again relies upon

Sparks where this division held: “An agreement to arbitrate is illusory if, as here, the

employer can unilaterally modify the handbook. [Citations.]” (Sparks, supra, 207

Cal.App.4th at p. 1523.) Plaintiff argues that the arbitration agreement or the contractual

obligations arising from Employee Handbook are illusory and thus unenforceable. We

disagree with plaintiff’s illusory contract-related arguments.

To begin with, the present case is different from Sparks because the arbitration

agreement itself contains a distinct qualified modification provision. As noted, in support

of its illusory contract contention, plaintiff relies on the broadly stated general authority

to modify the Employee Handbook and its related contractual obligations. But Appendix

A, the arbitration agreement, contains highly specific language which sharply limits the

authority of Tap Worldwide, LLC to modify the arbitration agreement. The relevant

language concerning modification set forth in the arbitration agreement states: “Each

Party hereby recognizes and acknowledges that this Agreement can only be modified by

a writing, signed by both parties. No oral modifications shall have any force or effect.

[¶] . . . [¶] This Agreement shall continue in effect indefinitely, except that TAP

[Worldwide, LLC] may modify and/or terminate this Agreement as to future disputes or

claims to the extent necessary or desired so to comply with any future developments or

changes in the law. Thirty (30) days written notice will be provided by TAP [Worldwide,

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LLC] prior to the effective date of any such modification and/or termination of this

Agreement. Any such modification and/or termination of this Policy shall only be

effective with respect to any dispute or claim arising after the effective date of the

modification and/or termination.” The arbitration agreement permits TAP Worldwide,

LLC to modify the arbitration agreement as to future claims, with a 30-day written notice.

However, the arbitration agreement may only be modified “so to comply with future

developments or changes in the law” and in a writing signed by the employer and

employee. No such language was present in the arbitration provisions at issue in Sparks.

And the mutual modification provisions do not apply to this case because no changes

have been made to the Employer Handbook or Appendix A. As a matter of law, the

qualified modification provision in the arbitration agreement cannot apply to this case. It

can only apply to future disputes; not the present one.

The general modification right accorded to Tap Worldwide, LLC in the Employee

Handbook does not extend to the arbitration agreement in Appendix A. As is apparent,

the two modification provisions are entirely different. The Employee Handbook permits

the changing, modification, supplementing, revision or rescission at any time of all the

policies and practices by specified corporate employees. By contrast, there are notice and

mutual agreement limitations on modifications to the arbitration agreement in Appendix

A. And those changes can only be made to comply with future modifications the law.

As is apparent, the modification condition contained in the arbitration agreement in

Appendix A is the more specific provision concerning alteration of the parties’

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understandings. Thus, the more specific provision must be enforced. (Code Civ. Pro., §

1859 [“[I]n the construction of the instrument the intention of the parties, is to be

pursued, if possible; and when a general and a particular provision are inconsistent, the

latter is paramount to the former.”]; Civ. Code, § 3534 [“Particular expressions qualify

those which are general.”]; National Ins. Underwriters v. Carter (1976) 17 Cal.3d 380,

386.) In terms of the arbitration agreement contained in Appendix A, it is not illusory as

plaintiff must concur with any changes in writing. The arbitration agreement contained

in Appendix A grants Tap Worldwide, LLC no unfettered or arbitrary right to modify or

terminate the parties’ understandings concerning the duty to arbitrate.

We now turn to the issue of the general right to change, modify, supplement,

revise or rescind the Employee Handbook. As noted, in Sparks, a different panel of this

division held that the right to modify employee handbook language voids any agreement

to arbitrate because the contract is illusory. (Sparks, supra, 207 Cal.App.4th at p. 1523.)

However, we have reconsidered these views in light of controlling California Supreme

Court authority and subsequent Court of Appeal criticisms of Sparks. Our Supreme

Court has held that an employer possesses the unilateral right to alter the terms of future

employment. In Asmus, supra, 23 Cal.4th at pages 15-16, our Supreme Court was called

upon to decide whether discontinuance of a policy providing an employee benefit

rendered the emolument illusory. The employee benefit, entitled the Management

Employment Security Policy, commenced in 1986 and was as follows: “‘It will be

Pacific Bell’s policy to offer all management employees who continue to meet our

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changing business expectations employment security through reassignment to and

retraining for other management positions, even if their present jobs are eliminated. [¶]

This policy will be maintained so long as there is no change that will materially affect

Pacific Bell’s business plan achievement.”’ (Id. at p. 7.) In January 1990, the employer

notified its managers that marketplace and demographic realities made it unlikely the

policy could continue. Nonetheless, it was not until April 1992, more than two years

later, that the employer unilaterally discontinued the Management Employment Security

Policy. (Id. at pp. 7-8.) The Management Employment Security Policy was replaced

with a generous severance allowance designed to decrease the number management

employees. On appeal, the plaintiffs, 60 former employees, argued that the Management

Employment Security Policy would be illusory if the employer could unilaterally modify

it. (Id. at p. 15.)

Our Supreme Court rejected the plaintiffs’ illusory contract contention. Our

Supreme Court held a contract that allows the employer to unilaterally terminate the

agreement is not illusory if the termination power is subject to limitations of fairness and

reasonable notice. Our Supreme Court explained: “Thus, an unqualified right to modify

or terminate the contract is not enforceable. But the fact that one party reserves the

implied power to terminate or modify a unilateral contract is not fatal to its enforcement,

if the exercise of the power is subject to limitations, such as fairness and reasonable

notice. ([] 1 Witkin, Summary of Cal. Law [(9th ed. 1987)] Contracts, § 233, p. 241.)”

(Asmus, supra, 23 Cal. 4th at p. 16.) The cited language in the 1987 version of the Witkin

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text states, “[T]he fact that one party reserves the power to vary [the price or other

performance at will] is not fatal, if the exercise of the power is subject to prescribed or

implied limitations.” (1 Witkin, Summary of Cal. Law, supra, Contracts, § 233, p. 241.)

Our Supreme Court then explained why the employer’s position on the illusory contract

dispute was correct: “As [the employer] observes, the [Management Employment

Security Policy] was not illusory because plaintiffs obtained the benefits of the policy

while it was operable. In other words, [the employer] was obligated to follow it as long

as the [Management Employment Security Policy] remained in effect. Although a

permanent no-layoff policy would be highly prized in the modern workforce, it does not

follow that anything less is without significant value to the employee or is an illusory

promise. [Citation.] As long as the [Management Employment Security Policy]

remained in force, [the employer] could not treat the contract as illusory by refusing to

adhere to its terms; the promise was not optional with the employer and was fully

enforceable until terminated or modified. [Citation.]” (Asmus, supra, 23 Cal. 4th at p.

16.)

The language utilized by our Supreme Court in holding the employer’s policy was

not an illusory contractual clause finds its basis in part in the cited analysis in the 1987

version of the Witkin text. Prior to Asmus, for decades, California appellate courts held

that a contract vesting a party with the authority to alter the agreement does not render it

illusory. This is because the implied covenant of good faith and fair dealing or

generalized fairness concerns limit the contracting party’s authority to modify contractual

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terms. (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 923 [a contract with

reciprocal promises is not illusory because one party may set the price for services; that

power’s exercise is subject to fair dealing and good faith restrictions]; 24 Hour Fitness,

supra, 66 Cal.App.4th at p. 1214 [employer’s president’s power to modify the employee

handbook did not render the arbitration clause illusory because the modification authority

was subject to the good faith and fair dealing implied covenant]; Third Story Music, Inc.

v. Waits (1995) 41 Cal.App.4th 798, 806, citing 2 Corbin, Contracts (rev. ed. 1995) §

5.28, pp. 149-150 [“‘An implied obligation to use good faith is enough to avoid the

finding of an illusory promise.’”]; Vanguard Investments v. Central Cal. Fed. Sav. &

Loan Assn. (1977) 68 Cal.App.3d 950, 958, fn. 8 [“a contracting party’s discretionary

power to vary the price or other performance does not render the agreement illusory if the

party’s actual exercise of that power is reasonable”]; Powell v. Central Cal. Fed. Sav. &

Loan (1976) 59 Cal.App.3d 540, 549 [same]; James G. Freeman & Associates, Inc. v.

Tanner (1976) 56 Cal.App.3d 1, 10 [rejecting an illusoriness contention because,

“[W]here the contract specifies performance the fact that one party reserves the power to

vary it is not fatal if the exercise of the power is subject to prescribed or implied

limitations such as the duty to exercise it in good faith and in accordance with fair

dealings.”]; Automatic Vending Co. v. Wisdom (1960) 182 Cal.App.2th 354, 357-358 [an

agreement where one party fixes a commission amount is not illusory because it is

subject to the implied good faith and fair dealing covenant and reasonableness

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considerations]; see 1 Witkin, Summary of Cal. Law (8th ed. 1973) Contracts, § 174, pp.

165-166; id. (1984 Supp.) § 174, p. 45.)

Further, after Asmus, appellate courts, other than in Sparks, have held that a

contracting party’s power to unilaterally prospectively alter a material contractual term

does not render the agreement illusory. And this is because the good faith and fair

dealing implied covenant limits unilateral action by a contracting party. (Serafin, supra,

235 Cal.App.4th at p. 176 [an arbitration agreement is not illusory because of the

employer’s right to modify its “‘policies or practices at any time’” because of the implied

covenant]; Casas v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th

1233, 1237, quoting Serpa v. California Surety Investigations, Inc. (2013) 215

Cal.App.4th 695, 708 (Serpa) [“‘[T]he implied covenant of good faith and fair dealing

limits the employer’s authority to unilaterally modify the arbitration agreement and saves

that agreement from being illusory and thus unconscionable.’”]; Peng v. First Republic

Bank (2013) 219 Cal.App.4th 1462, 1473-1474 [an arbitration agreement was not illusory

and therefore not substantively unconscionable because the employer’s modification right

was subject to the implied covenant of good faith and fair dealing]; Serpa, supra, 215

Cal.App.4th at pp. 707-708 [“the implied covenant of good faith and fair dealing is

properly applied in this case and saves this arbitration contract from being illusory”];

Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425, 1463-1466 [an

agreement was not illusory as to future contractual changes because the employer’s

modification rights were subject to the implied covenant of good faith and fair dealing].)

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Our colleagues in Division Seven of this appellate district have expressly declined to

follow the holding in Sparks that an employer’s right to modify an arbitration agreement

renders it illusory. (Serpa, supra, 215 Cal.App.4th at p. 708, fn. 7.) Instead, our Division

Seven colleagues relied on the analysis to the contrary in 24 Hour Fitness, supra, 66

Cal.App.4th at pages 1213-1214. (Serpa, supra, 215 Cal.App.4th at p. 708, fn. 7.) Also,

federal courts have recognized California’s rule that a party’s modification authority is

limited by the implied covenant of good faith and fair dealing. (Milenbach v. C.I.R. (9th

Cir. 2003) 318 F.3d 924, 930 [“Under California law, an obligation under a contract is

not illusory if the obligated party’s discretion must be exercised with reasonableness or

good faith.”]; Chodos v. West Publishing Co. (9th Cir. 2002) 292 F.3d 992, 997 [“Thus, a

court will not find a contract to be illusory if the implied covenant of good faith and fair

dealing can be read to impose an obligation on each party.”].)

We have reconsidered the views of the majority in Sparks concerning illusory

contracts in the employment context. We do so because of: controlling California

Supreme Court authority; the decisional authority in effect prior to and after the Asmus

opinion was filed; and the subsequent express or implied disagreement of the Courts of

Appeal with our illusory contract analysis in Sparks. Hence, we conclude contrary to

Sparks, the employer’s right to change the Employee Handbook does not render the

arbitration agreement illusory. (In defense of the trial court, it materially relied on

Sparks.)

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To sum up, the arbitration agreement’s more specific modification provisions

control over those in the Employee Handbook. The arbitration agreement’s modification

provisions are not illusory. Further, the general modification provision in the Employee

Handbook is subject to the implied covenant of good faith and fair dealing. The

modification provisions in the Employee Handbook are thus not illusory. None of

plaintiff’s illusory contract contentions permit affirmance of the order under review.

[Part III(C) of this opinion is deleted from publication. See post at page 29 where

publication is to resume.]

C. The Arbitration Agreement Is Not Unconscionable

Plaintiff also asserts the arbitration agreement is unconscionable. Code of Civil

Procedure section 1281.2, subdivision (b) provides that an arbitration agreement is not

enforceable if the court determines grounds exist for revocation of the agreement.

Unconscionability is one such ground. (Pinnacle, supra, 55 Cal.4th at p. 246;

Armendariz, supra, 24 Cal.4th at p. 114.) Our Supreme Court has explained

“‘[U]nconscionability has both a “procedural” and a “substantive” element,’ the former

focusing on ‘“oppression”’ or ‘“surprise”’ due to unequal bargaining power, the latter on

‘“overly harsh”’ or ‘“one-sided”’ results. [Citation.]” (Armendariz, supra, 24 Cal.4th at

p. 114; accord, Pinnacle, supra, 55 Cal.4th at p. 246; see also Sanchez v. Valencia

Holding Co., LLC (2015) 61 Cal.4th 899, 911 [“overly harsh,” “unduly oppressive,” and

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“unreasonably favorable” all mean the same thing for substantive unconscionability].)

Our Supreme Court later held: “Both procedural unconscionability and substantive

unconscionability must be shown, but ‘they need not be present in the same degree’ and

are evaluated on ‘“a sliding scale.”’ [Citation.] ‘[T]he more substantively oppressive the

contract term, the less evidence of procedural unconscionability is required to come to the

conclusion that the term is unenforceable, and vice versa.’ [Citation.]” (Pinnacle, supra,

55 Cal.4th at p. 247; Armendariz, supra, 24 Cal.4th at p. 114.)

The arbitration agreement is adhesive. It was imposed on plaintiff as a condition

of employment. But there is no evidence as to whether defendant would have been

willing to negotiate over the terms of the arbitration agreement. Plaintiff’s declaration

does not address that issue. In any event, adhesive contracts contain at least some degree

of procedural unconscionability. (Sanchez v. Valencia Holding Co., LLC, supra, 61

Cal.4th at p. 915; Armendariz, supra, 24 Cal.4th at pp. 114-115.) We now address

plaintiff’s claims of substantive unconscionability.

Plaintiff asserts that the arbitration agreement is substantively unconscionable

because TAP Worldwide, LLC can unilaterally modify the agreement without notice

under the handbook. However, as stated previously, the provision permitting an

amendment to the arbitration agreement is extremely limited: it can only be effective

when the employee has signed the modification in writing; it could only be modified so

as to comply with future changes in the law; it applies in a prospective manner only; and

it cannot apply to the present dispute as a matter of law. In addition, the modification

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provision is subject to the implied covenant of good faith and fair dealing. (Serafin,

supra, 235 Cal.App.4th at p. 176; Casas, supra, 224 Cal.App.4th at p. 1237; Peng v. First

Republic Bank, supra, 219 Cal.App.4th at pp. 1473-1474; 24 Hour Fitness, Inc., supra,

66 Cal.App.4th at p. 1214.) The Court of Appeal has held: “‘[T]he implied covenant of

good faith and fair dealing limits the employer’s authority to unilaterally modify the

arbitration agreement and saves that agreement from being illusory and thus

unconscionable.’ [Citation.]” (Casas, supra, 224 Cal.App.4th at p. 1237; Serpa, supra,

215 Cal.App.4th at p. 708.) Plaintiff makes no other argument concerning substantively

unconscionable terms. We find plaintiff has failed to demonstrate the arbitration

agreement was unconscionable.

Plaintiff has not shown grounds to prevent enforcement of the arbitration

agreement. Defendants’ motion to compel arbitration should have been granted. Mr.

Rivera and Mr. Dominguez, though they were not parties to the arbitration agreement, are

also entitled to compel arbitration as they are employees or agents of TAP Worldwide,

LLC. (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614; Michaelis v. Schori (1993)

20 Cal.App.4th 133, 139.)

[The balance of the opinion is to be published.]

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IV. DISPOSITION

The February 20, 2015 order denying defendants’ motion to compel arbitration is

reversed. Upon remittitur issuance, the motion to compel arbitration is to be granted.

Defendants, TAP Worldwide, LLC, Eddie Rivera and Alex Dominguez, shall recover

their appeal costs from plaintiff, Dwayne Harris.

CERIFIED FOR PARTIAL PUBLICATION

TURNER, P. J.

We concur:

KRIEGLER, J.

KUMAR, J. *

*

Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to

article VI, section 6 of the California Constitution.

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