Sonic-Calabasas: Arbitration Agreement Cannot Waive Right to Bring Labor Commissioner Wage Claim

In Sonic-Calabasas A, Inc. v. Moreno (2/24/11) --- Cal.4th ---, 2011 WL 651877, the California Supreme Court has answered three important questions involving arbitration clauses in employment agreements.

Plaintiff worked for defendant, a car dealership. As a condition of employment, he signed an employment agreement that included a mandatory arbitration clause under the Federal Arbitration Act (FAA). After he left defendant, plaintiff filed a wage claim before the Division of Labor Standards Enforcement (DLSE). The Superior Court denied defendant's petition to compel arbitration, and defendant appealed. The Court of Appeal reversed, and the Supreme Court granted review.

The Court first discussed the procedure for DLSE "Berman" hearings. Slip op. at 3-5. The Court held that Berman hearings and arbitration are compatible, so long as the Berman hearing proceeds first. Slip op. at 5-6.

Like the Labor Commissioner below, we see no reason why the statutory protections afforded employees following a Berman hearing cannot be made available in an arbitration proceeding. A party to a Berman hearing seeking a de novo appeal via arbitration pursuant to a prior agreement rather than through a judicial proceeding would initially file an appeal in superior court pursuant to section 98.2, subdivision (a), together with a petition to compel arbitration. The superior court would determine whether the appeal is timely and whether it comports with all the statutory requirements, such as the undertaking requirement in subdivision (b). If so, and if the petition to compel arbitration is unopposed, or found to be meritorious, the trial court will grant the petition. The Labor Commissioner, pursuant to section 98.4, may then represent an eligible wage claimant in the arbitration proceeding. The one-way fee-shifting provisions of section 98.2, subdivision (c) will be enforced initially by the arbitrator, with such judicial review as may be appropriate.

The above framework does not purport to anticipate every problem that may arise from dovetailing the Berman hearing statutes and the CAA. But the Labor Commissioner's position below that the Berman hearing was merely preliminary to, rather than preemptive of, binding arbitration confirms our conclusion that the two statutory schemes are compatible and that having the Berman hearing precede arbitration is workable.

Slip op. at 6-7.

The Court then held that "the employee's statutory right to seek a Berman hearing, with all the possible protections that follow from it, is itself an unwaivable right that an employee cannot be compelled to relinquish as a condition of employment." Slip op. at 8.

The Court noted that it would reach the same result through an unconscionability analysis:

In sum, rather than being justified by “legitimate commercial needs” (see Armendariz, supra, 24 Cal.4th at p. 117, 99 Cal.Rptr.2d 745, 6 P.3d 669), the main purpose of the Berman waiver appears to be for employers to gain an advantage in the dispute resolution process by eliminating the statutory advantages accorded to employees designed to make that process fairer and more efficient. We conclude the waiver is markedly one-sided and therefore substantively unconscionable. This substantive unconscionability, together with the significant element of procedural unconscionability, leads to the conclusion that the Berman waiver in the arbitration agreement at issue here is unconscionable.

Slip op. at 13.

Finally, the Court found that its public policy and unconscionability holdings were not preempted by the FAA. Slip op. at 14-20. Interestingly, the Supreme Court of the United States seems poised to reach the same result in AT&T Mobility, LLC v. Concepcion.

The opinion was written by Justice Moreno, with Justices Kennard, Werdegar, and George joining. Justices Chin, Baxter, and Corrigan dissented.

The opinion is available here.