Big Blue Pencil Saves Carmax's Day

Casas v. Carmax Auto Superstores California LLC, No. B246392 (D2d1 Mar. 20, 2014)

This is an appeal of a denial of a motion to compel arbitration over the same Carmax employment arbitration agreement that was at issue in a case decided a few weeks ago. Unsurprisingly, the court reaches the same result and reverses, although the issues addressed in this appeal are somewhat different. Here, the crux of the plaintiff’s argument is that the agreement—contained in Carmax’s employee handbook—is illusory and thus unenforceable because it permits Carmax to unilaterally modify it. He relies on Sparks v. Vista Del Mar Child & Family Services, 207 Cal. App. 4th 1511, 1522 (2012), which in a single sentence without further elaboration states that “[a]n agreement to arbitrate [contained in an employee handbook] is illusory if, as here, the employer can unilaterally modify the handbook.”

But the court distinguishes Sparks, because unlike the handbook in Sparks, the Carmax handbook could only be modified on thirty days written notice, so the agreement is not illusory. And even were the handbook silent as to notice, under Peleg v. Neiman Marcus Group, Inc., 204 Cal. App. 4th 1425, 1463–64 (2012)—a case decided by this same division a three months before Sparks— the implied covenant of good faith and fair dealing would read in a notice requirement, which would prevent the agreement from being illusory. (This seems like more a rejection of Sparks than a way to distinguish it, since presumably the Sparks handbook was also subject to the implied covenant.) 

Finally, the court notes that the handbook does expressly permit Carmax to make unilateral rule changes applying to already-accrued claims. Generally, that would make the agreement illusory under Peleg, as it would let Carmax pierce the veil of procedural ignorance and write rules to its advantage on particular known claims. That flaw can’t be fixed by the implied convent because it would rewrite the express terms of the agreement. The agreement, however, contains a savings clause that authorizes the modification of any unlawful rule in it to conform with the law until a formal amendment is made. Because that clause would prevent enforcement of retroactive rule changes, the agreement would stand under Peleg.

Reversed.