Casas v. Carmax Auto Superstores California Case Analysis

An Arbitration Agreement Not Necessarily Illusory Merely Because It Gives the Employer the Right to Unilaterally Change the Terms of The Agreement

A recent California case shows that employers may legally amend or terminate an arbitration agreement, so long as the employer provides proper notice for the modifications. In the case of Casas v. Carmax Auto Superstores Cal. LLC, 224 Cal. App. 4th (2014), the California Court of Appeal held that an arbitration agreement between an employer and an employee was not necessarily illusory or unconscionable just because the employer had the power to unilaterally amend or terminate the agreement. In this case, the court found that the agreement was valid because it required the employer to give advanced, adequate, and timely notice, before making any unilateral changes.

Factual Basis for the Case

The case arose when former employee, Mario Casas filed a wrongful termination complaint against CarMax Auto Superstores California (“CarMax”). Casas had worked for CarMax for about two years, when the company terminated his position as a service consultant. CarMax claimed that it fired Casas, because he had earned poor results in customer service surveys. But Casas claimed that CarMax really fired him, because he refused to participate in and discuss CarMax’s illegal actions. Casas therefore filed a complaint against CarMax, alleging wrongful termination, violations of the Labor, Business, and Profession Codes, breach of an implied contract not to terminate employment without good cause, intentional infliction of emotional distress, negligent hiring, negligent retention, negligent supervision, and defamation.

CarMax responded by filing a motion to compel arbitration, based on a dispute resolution agreement (arbitration agreement), that Casas had signed as part of his application for employment. In the agreement, Casas acknowledged receipt of the dispute resolution rules and procedures (“DRRP”). Casas nonetheless opposed the motion to compel, arguing that the arbitration agreement was not a valid contract, and even if the arbitration agreement were a binding contract, it was unconscionable. The trial court denied CarMax’s motion to compel arbitration, finding that the arbitration agreement was illusory, because it gave CarMax the right to alter or termination the agreement and DRRP. CarMax then appealed.

The Appeal

Rule 19 of the DRRP states that CarMax had the right to alter or terminate the agreement and the DRRP, so long as CarMax provides thirty calendar days written notice to the employees before making any changes. In addition, CarMax could only make unilateral modifications with the understanding that all the claims arising before the modification would be subject to the version of the agreement and DRRP in effect at the time the employee files the arbitration request. The DRRP further provided that CarMax could provide sufficient notice by posting any alterations or changes at CarMax locations.

The trial court had ruled that the arbitration agreement was illusory, because CarMax could unilaterally change it without directly notifying employees. The appellate court did not agree. Although the agreement empowered CarMax to make unilateral changes, it also constrained CarMax’s ability to unilaterally change the agreement at anytime. Indeed, the agreement and DRRP provided a specific date for any amendments, mandated thirty days notice, and public posting at CarMax locations. The court further found that California law did not invalidate the agreement and DRRP merely because CarMax could unilaterally alter or terminate it, because California law contains an implied covenant of good faith and fair dealing. The Court, however, did take issue with the provision of the agreement, which would apply amendments to claims that arose before the amendment came into force. The Court found that this retroactive modification is unconscionable. But, rather than invalidate the entire arbitration agreement and DRRP, the court severed the unconscionable provision, and ordered the parties to arbitrate.

Casas’s Impact

Casas has a few important lessons for both employers and employees. First, employers should be aware that they may not retroactively apply modifications to pending arbitrations. A court would likely find such retroactive provisions unconscionable. Second, employers and employees should be aware that arbitration agreements are severable. Even if a portion of an arbitration agreement is invalid, the court might invalidate that portion of the agreement, while upholding the remaining provisions. Third, this case shows that an arbitration agreement that gives the employer the right to unilaterally alter or amend the agreement, but only if the agreement has certain provisions. Namely, advanced notice is of chief concern. Employees who are party to arbitration agreements that empower their employers to make unilateral modifications with little or no notice may have a claim. If you have a wage or hour dispute, contact the employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside, and Los Angeles. Call 714-937-2020.