Court of Appeal clarifies arbitration agreement interpretation under Civ. Code § 1642: Silva v. Cross Country Healthcare, Inc.

In Silva v. Cross Country Healthcare, Inc.,          Cal.App.5th           (Jun. 17, 2025), the Court of Appeal (Second Appellate District, Division Five) held that an arbitration agreement must be read concurrently with an employment agreement under Civ. Code § 1642. If their combined effect creates substantively unconscionable imbalances, particularly nonmutual arbitration obligations and remedies, the entire agreement may be unenforceable, with severance appropriately denied.

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Plaintiffs, employees of a healthcare staffing company, filed a putative class action and representative PAGA suit alleging various wage and hour violations. Defendant’s motion to compel arbitration was denied by the trial court, which found the arbitration agreement, when read with the employment agreement, unconscionable and wholly unenforceable due in part to forcing employee claims into arbitration while permitting defendant to litigate. Defendant appealed.

The Court of Appeal affirmed the denial of the motion to compel arbitration. Following Alberto v. Cambrian Homecare (2023) 91 Cal.App.5th 482, it held that the arbitration and employment agreements must be read together under Civ. Code § 1642. It rejected Defendant’s argument that the trial court erred by failing to consider the parties’ subjective intent and its argument that contracts need to explicitly cross-reference or necessarily depend on each other while having the same consideration to be taken together under § 1642. The Court of Appeal also rejected a “clear and unequivocal” standard for construing instruments together under § 1642, and held that the supersession clause in the employment agreement allowed the two agreements to be read together despite apparently contradictory terms. 

The court then found “notable substantive unconscionability,” citing the combined agreement’s imbalanced arbitration obligations, nonmutual attorney fees provisions, and injunctive relief available solely to Defendant. It declined to address whether the employment agreement’s unlawful salary disclosure restriction added to unconscionability. Finally, it determined the trial court did not abuse its discretion by refusing to sever the unconscionable sections, holding that California’s severance doctrine may apply to FAA-governed arbitration agreements and that severance would not serve justice.

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