Haugh v. Barrett Business Services, Inc.

Filing 30

ORDER signed by District Judge Vince Chhabria on 2/28/2017 GRANTING with LEAVE to AMENDED 15 Motion to Dismiss; If Haugh chooses to continue to pursue claims for PAGA penalties in this case, he must file an amended complaint within 21 days of this order; GRANTING 16 Motion to Compel. (Washington, S)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA

MICHAEL HAUGH,

Case No. 16-cv-02121-VC

Plaintiff,
ORDER GRANTING MOTIONS TO
COMPEL AND DISMISS

v.
BARRETT BUSINESS SERVICES, INC.,

Re: Dkt. Nos. 15, 16

Defendant.

Michael Haugh has sued his former employer, Barrett Business Services, Inc., alleging
retaliation, harassment, and wrongful termination based on his complaints to others at the
company about Barrett's practice of hiring undocumented immigrants and looking the other way
when Barrett's clients hired undocumented immigrants. He asserts individual claims, and also
purports to seek PAGA penalties for violations against him and others. Barrett has moved to
compel arbitration of Haugh's individual claims, to dismiss the claim for PAGA penalties for
failure to comply with the procedural requirements of the statute, and then to stay any new claim
for PAGA penalties.
Motion to Compel Arbitration of the Individual Claims
Before beginning work for Barrett, Haugh signed an employment agreement. As relevant
to the motion to compel arbitration, the agreement included a provision saying, "Arbitration shall
be the exclusive means of resolving any dispute arising out of Employee's employment or
termination from employment by the Company and no other such action can be brought by
Employee or the Company in any court." See Wiswall Decl. Ex. B, at 4. The agreement
included a proviso allowing Barrett to seek injunctive relief from a court for breaches of the

employment agreement. See Wiswall Decl. Ex. B, at 5.
Haugh filed this lawsuit in California state court, Barrett removed it to federal court
based on diversity jurisdiction, and Haugh filed an amended complaint. Barrett seeks to compel
arbitration of the amended complaint's individual claims. Because the arbitration agreement
unambiguously covers Haugh's individual claims, the question is whether the arbitration
agreement is enforceable.
Unconscionability
Arbitration clauses are subject to the same defenses that are available against application
of all other contracts, and a contract provision may be invalid if it is unconscionable. See 9
U.S.C. § 2; Cal. Code Civ. Proc. § 1281.2. To invalidate the arbitration clause, Haugh must
show both substantive unconscionability and procedural unconscionability. See Armendariz v.
Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal. 2000). The two forms of
unconscionability do not need to be present in equal quantities, but both must be present for the
arbitration clause to be unconscionable. Id.
Although the proviso about injunctive relief makes the arbitration provision one-sided to
a large extent and therefore reflects a significant degree of substantive unconscionability, the
near total lack of apparent procedural unconscionability – surprise or oppression – means that the
arbitration provision is not unconscionable. See Harper v. Ultimo, 7 Cal. Rptr. 3d 418, 422 (Ct.
App. 2003). It is not clear that the contract was truly adhesive. See Graham v. Scissor-Tail, Inc.,
623 P.2d 165, 171-72 (Cal. 1981). Haugh believed that the contract terms were not negotiable,
but he presents no evidence or arguments for the inability to negotiate apart from his own
personal understanding. Haugh Decl., at 3. The same is true of the timing of the agreement.
Haugh says that he felt the hiring process was moving quickly, but he does not argue that anyone
rushed him or gave him a deadline to agree to the contract. Id. at 2-3. Finally, there was no
apparent element of surprise in the agreement, further reducing the degree of scrutiny required.
See Baltazar v. Forever 21, Inc., 367 P.3d 6, 11 (Cal. 2016) (quoting Gentry v. Superior Court,
165 P.3d 556, 572 (Cal. Ct. App. 2007)). Haugh initialed every page of the employment

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agreement, including the pages with the arbitration provision, the injunctive relief provision, and
the provision acknowledging his opportunity to consult with a lawyer before executing the
agreement. Haugh says that he did not understand the arbitration provision and nobody
explained it to him. Haugh Decl., at 3. But Haugh's failure to understand the arbitration
provision does not invalidate it. See Madden v. Kaiser Found. Hosps., 552 P.2d 1178, 1185
(Cal. 1976).
Severability
Even if the arbitration provision were substantively and procedurally unconscionable,
Haugh's individual claims would still be compelled to arbitration because the problematic
injunctive relief provision is severable from the arbitration provision and the rest of the
employment agreement. See Lara v. Onsite Health, Inc., 896 F. Supp. 2d 831, 848 (N.D. Cal.
2012). The primary inquiry on severing an unconscionable contract provision is whether
severance furthers the interests of justice. See Cal. Civ. Code § 1670.5. Haugh's agreement with
Barrett is not permeated by unconscionability. Cf. Carmona v. Lincoln Millennium Car Wash,
Inc., 171 Cal. Rptr. 3d 42, 55 (Ct. App. 2014); Nyulassy v. Lockheed Martin Corp., 16 Cal. Rptr.
3d 296, 311-12 (Ct. App. 2004). Instead, the lack of mutuality is focused in one provision,
which may be severed. See Armendariz, 6 P.3d at 696-97; Nyulassy, 16 Cal. Rptr. 3d at 311-12.
And there is no need to write new terms into the contract, since the potential unconscionability
can be removed simply by severing the injunctive relief provision. See Armendariz, 6 P.3d at
697. Finally, the injunctive relief provision is not implicated in this case, and there is no
evidence that it harmed Haugh, further supporting its severability from the rest of the contract.
See Lara, 896 F. Supp. 2d at 848.
Because the arbitration provision is not unconscionable, and because the injunctive relief
provision would be severable from the rest of the agreement if that aspect of it were
unconscionable, Haugh's individual claims are compelled to arbitration and dismissed. See
Johnmohammadi v. Bloomingdale's, Inc., 755 F.3d 1072, 1073-74 (9th Cir. 2014).

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Motion to Dismiss the PAGA Claims
As previously mentioned, Haugh also seeks PAGA penalties to enforce his rights "and
the rights of current and former employees." There are number of problems with Haugh's
attempt to recover PAGA penalties. First, as Haugh concedes, he has failed to plead compliance
with PAGA's procedural requirements. His PAGA claims must be dismissed for this reason
alone. Kemp v. Int'l Bus. Machines Corp., No. 09-cv-4683 MHP, 2010 WL 4698490, at *3
(N.D. Cal. Nov. 8, 2010).
But there are other problems. For one thing, the complaint does not clearly identify
which substantive legal claims Haugh believes give rise to PAGA penalties. For example, he
appears to seek PAGA penalties in connection with what he calls his "sixth cause of action," but
the allegations are not clear (nor is it clear that he may seek PAGA penalties based on the "sixth
cause of action"). For another thing, although the complaint asserts that Haugh is attempting,
through PAGA, to enforce the rights of others, it includes no explanation about how Barrett's
alleged conduct constituted a Labor Code violation against anyone other than Haugh himself.
Therefore, if Haugh decides to file an amended complaint asserting only non-arbitrable
PAGA claims, he must consider four things. First, any amended complaint must allege
compliance with PAGA's procedural requirements. Second, any amended complaint must be
limited to violations that can actually give rise to PAGA penalties, and the complaint must only
seek PAGA penalties. Third, if Haugh is truly attempting to assert these claims not just on
behalf of himself but also on behalf of others, any amended complaint must include factual
allegations about how Barrett violated the Labor Code with respect to the other people Haugh
purports to represent.1 Fourth, Haugh should consider whether it's worth filing an amended
complaint that seeks only PAGA penalties at this time. Barrett has requested that any PAGA

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If Haugh is not truly seeking PAGA penalties based on violations against others as well as
himself, it's not clear he would be able to pursue PAGA claims at all. See Cal. Lab. Code § 2699
(describing a PAGA action as "a civil action brought by an aggrieved employee on behalf of
himself or herself as well as other current or former employees"); Iskanian, 327 P.3d at 149
(identifying a split in authority on this issue).

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claims be stayed pending arbitration of Haugh's individual claims. Although it's not correct, as
some courts seem to assume, that a plaintiff's PAGA claims should always be stayed pending
arbitration of the individual claims, on these facts it's difficult to imagine that Barrett's request
for a stay wouldn't be granted.2
If Haugh chooses to continue to pursue claims for PAGA penalties in this case, he must
file an amended complaint within 21 days of this order. If he does not, the Court will enter a
judgment of dismissal without prejudice.
IT IS SO ORDERED.
Dated: February 28, 2017
______________________________________
VINCE CHHABRIA
United States District Judge

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Although Jacobson v. Snap-on Tools Co., No. 15-cv-02141-JD, 2015 WL 8293164, at *6 (N.D.
Cal. Dec. 9, 2015), seems to suggest that PAGA claims should be stayed automatically, courts
have discretion to stay claims not subject to arbitration while other claims are being arbitrated.
See U.S. for Use & Benefit of Newton v. Neumann Caribbean Int'l, Ltd., 750 F.2d 1422, 1426-27
(9th Cir. 1985); Shepardson v. Adecco USA, Inc., No, 15-cv-05102-EMC, 2016 WL 1322994, at
*6 (N.D. Cal. Apr. 5, 2016). Whether a court should exercise that discretion to stay claims for
PAGA penalties may depend on a number of factors, including perhaps the extent and degree to
which the defendant's alleged conduct affects a class of people, and any need the class may have
for prompt relief. It's difficult to imagine, given the nature of his claims (which seem largely if
not entirely individual) that Haugh could make any colorable argument against a stay of his
PAGA claims.

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