Reyes v. Hearst Communications, Inc.

Background

Manuel Reyes sued Hearst Communications, Inc., alleging that Hearst improperly treated him as an independent contractor. Reyes described himself as a newspaper dealer who primarily sorted and delivered Hearst’s publications, including the San Francisco Chronicle and other newspapers, in the Bay Area. He asserted claims under the California Labor Code, the Fair Labor Standards Act, and the California Business and Professions Code.

Hearst moved to compel arbitration based on a contractor home-delivery agreement Reyes signed on December 2, 2019. The agreement included an arbitration provision in paragraph 18. Hearst relied on both the Federal Arbitration Act (FAA) and the California Arbitration Act (CAA).

Federal Arbitration Act

The FAA generally requires courts to enforce written arbitration agreements, but it excludes contracts involving certain workers engaged in interstate commerce. Relying on Ninth Circuit decisions, the court concluded that Reyes qualified for this exclusion. Reyes stated that he delivered advertisements shipped in boxes from other states and that Hearst’s newspapers arrived on pallets that were divided among newspaper dealers. Hearst did not provide evidence disputing those statements or showing that the publications originated within California.

The court concluded that Reyes was engaged in moving goods through interstate commerce even though his delivery zone was limited to the Bay Area and he did not cross state lines. The court also rejected Hearst’s arguments that Reyes was not a covered worker because he could use third parties for deliveries and because he assembled the publications before delivering them. The court therefore held that the FAA did not apply.

California Arbitration Act

The CAA does not contain the FAA’s interstate-commerce worker exclusion. The court nevertheless rejected Hearst’s alternative request to compel arbitration under the CAA because the arbitration provision was unconscionable. Unconscionability is a contract-law doctrine addressing unfairness in an agreement; it can involve both unfair terms and unfair circumstances surrounding the agreement.

The court found the fee provision in paragraph 18(j) substantively unconscionable. That provision required each party to pay fees for its own attorneys and the arbitrator’s and arbitration-related expenses. The court concluded that the provision could require Reyes to pay arbitration expenses he would not have had to pay to bring the claims in court. The provision therefore was unconscionable as to both the clause assigning the arbitrator authority to decide whether the case belonged in arbitration and the broader arbitration provision.

The court also found sufficient procedural unconscionability, meaning surprise or pressure arising from unequal bargaining power. Reyes stated that Spanish was his primary language, that he was not fluent in reading or writing English, and that Hearst offered him only an English version of the agreement. He also stated that he and other drivers received form agreements with blank sections for their per-delivery rates. The court found his account of his language limitations persuasive and concluded that the evidence showed enough surprise and pressure.

Because the fee-splitting provision applied to all arbitration expenses, the court held that the arbitration provision was unenforceable in its entirety. The court declined Hearst’s request to sever, or remove, the fee provision. It reasoned that Hearst had not explained why severance was justified and that severance could encourage improper drafting strategies in which an agreement included an overly harsh term with the expectation that it could later be removed.

Disposition

The court denied Hearst Communications, Inc.’s motion to compel the action to arbitration. Judge Phyllis J. Hamilton entered the order on August 24, 2021.