On October 17, 2013, in Sonic-Calabasas v. Moreno. (Sonic II), the California Supreme Court overturned its. 2011 holding in Sonic-Calabasas v. Moreno ...
Reversing Previous Ruling, California Supreme Court Holds Arbitration Agreement that Waives Right to an Administrative Hearing May Be Enforceable On October 17, 2013, in Sonic-Calabasas v. Moreno (Sonic II), the California Supreme Court overturned its 2011 holding in Sonic-Calabasas v. Moreno (Sonic I) that an employee could not be required to waive his or her right to an administrative hearing concerning wage claims before the state’s Labor Commissioner. Following United States Supreme Court precedent, the California Supreme Court held in Sonic II that the Federal Arbitration Act (FAA) preempts any state-law rule categorically prohibiting waiver of a hearing before a Labor Commissioner in a pre-dispute mandatory employment arbitration agreement. The California Labor Code provides that an employee may pursue a wage claim through an administrative hearing before the Labor Commissioner, referred to as a “Berman” hearing. In Sonic I, the California Supreme Court stated that pre-dispute arbitration agreements that purported to waive the right to a Berman hearing were unconscionable and against public policy. In AT&T Mobility LLC v. Concepcion, the United States Supreme Court held that the FAA limits a state’s capacity to restrict the enforceability of arbitration agreements. The Supreme Court held in Concepcion that a state law could not prohibit “outright the arbitration of a particular type of claim,” and when it did so, “the analysis is straightforward: The conflicting rule is displaced by the FAA.” The Concepcion court expressly overruled a prior California Supreme Court decision finding that class action waivers in consumer arbitration agreements were unconscionable. The Supreme Court remanded Sonic to the California Supreme Court for reconsideration of its decision concerning Berman hearings in light of Concepcion.
In Sonic II, the California Supreme Court overruled Sonic I in light of Concepcion. The Court explained that even if the unwaivability of Berman hearings is desirable as a matter of contractual fairness or public policy, categorically prohibiting a waiver interferes with the FAA’s fundamental objective to achieve “streamlined procedures and expeditious results” because Berman hearings can substantially delay arbitration. But the Court warned that arbitration agreements that waive Berman hearing protections are not automatically unconscionable, and that California courts could still find an agreement unconscionable and unenforceable if it “does not provide an employee with an accessible and affordable arbitral forum for resolving wage disputes.” The Court instructed lower courts to examine the totality of an arbitration agreement’s substantive terms and the circumstances of its formation to determine whether the overall bargain was “unreasonably one-sided.” This is the first of two highly anticipated rulings from the California Supreme Court. Still pending is another case, Iskanian v. CLS Transportation Los Angeles LLC, which promises to provide guidance concerning the impact of Concepcion concerning class action waivers and representative claims under California’s Private Attorney General Act. Employers are encouraged to review their mandatory arbitration agreements in light of this new California Supreme Court guidance.
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