Monroe Operations, LLC, doing business as Newport Healthcare is a nationwide behavioral healthcare company which provides therapy for individuals with mental health issues. It has residential treatment facilities across the country including in California, Utah, Minnesota, Connecticut, and Washington.
Prior to starting her employment at Newport Healthcare, Karla Velarde worked as a customer service agent for Air Tahiti. However, she was laid off in March 2020 due to the COVID-19 pandemic. She was unemployed for nine months until Newport Healthcare agreed to hire her as a care coordinator.
Newport Healthcare required Velarde to attend an orientation scheduled for her first day of work. Upon arriving at Newport Healthcare’s office, Velarde was escorted to a large conference room where she waited until an HR manager arrived. The HR manager presented Velarde with “a stack of [31] documents and told [her she] was required to complete the forms before [she] could start working.” The HR manager told her, ‘“we gotta get through [these to] get you onboard. We’ll try to get through them as fast as possible.”’ Velarde “felt pressured to fill out the forms quickly, since [the HR manager] was waiting for [her] . . . .”
One of the documents was an arbitration agreement, which Velarde refused to sign because she “did not understand what it was.” Velarde told the HR manager that because she did not understand what it was, she did not feel comfortable signing it. The HR manager told her, “‘if there are ever any issues, [the arbitration agreement] will allow us to resolve them for you.”’ Velarde asked if she needed to sign the agreement in order to start working. The HR manager responded, ‘“Yes. This will help us resolve any issues without having to pay lawyers.”’ Velarde executed the agreement because she “knew that [she] had to sign it to begin working . . . .”
Newport Healthcare later terminated Velarde’s employment. Velarde filed a lawsuit alleging, among other things, discrimination, retaliation, and violation of whistleblower protections against Newport Healthcare and its director of residential services, Amanda Seymour.
Defendants filed a motion to compel arbitration which the trial court denied. The trial court ruled Newport Healthcare pressured Velarde to sign the agreement, which she did not want to do, and the agreement unlawfully prohibited Velarde from seeking judicial review of an arbitration award. On appeal, Appellants take issue with the trial court interpreting the agreement in a manner which bars judicial review of an arbitration award.
The Court of Appeal affirmed the trial court denial of the motion to compel arbitration in the published case of Velarde v. Monroe Operations, CA4/3 – G063626 – (June 2025).
“Procedural unconscionability ‘addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.’” (Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 492.) “This element is generally established by showing the agreement is a contract of adhesion, i.e., a ‘standardized contract which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’” (Ibid.)
“Substantive unconscionability looks beyond the circumstances of contract formation and considers ‘the fairness of an agreement’s actual terms’ [citation], focusing on whether the contract will create unfair or one-sided results [citation].” (Ramirez, supra, 16 Cal.5th at p. 493.) Substantively “[u]nconscionable terms “‘impair the integrity of the bargaining process or otherwise contravene the public interest or public policy”’ or attempt to impermissibly alter fundamental legal duties. [Citation.] They may include fine-print terms, unreasonably or unexpectedly harsh terms regarding price or other central aspects of the transaction, and terms that undermine the nondrafting party’s reasonable expectations.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 130 (OTO).)
After a review of the record, the Court of Appeal noted that there “was extensive evidence of procedural unconscionability, with an adhesive contract, buried in a stack of 31 documents to be signed as quickly as possible while a human resources (HR) manager waited, before Velarde could start work that same day.
“Most problematically, in response to Velarde’s statements that she was uncomfortable signing the arbitration agreement as she did not understand it, false representations were made by Newport Healthcare’s HR manager to Velarde about the nature and terms of the agreement.”
“These representations, which specifically and directly contradicted the written terms of the agreement, rendered aspects of the agreement substantively unconscionable. These procedural and substantively unconscionable aspects, taken together, render the agreement unenforceable.”