California Supreme Court Finds Another Employment Arbitration Agreement Unenforceable As Drafted

Despite the Federal Arbitration Act and the California Arbitration Act, both of which provide essentially that arbitration agreements are valid and enforceable, it can scarcely be gainsaid that California courts will for the foreseeable future continue to closely scrutinize pre-dispute arbitration agreements between employers and employees. Such arbitration agreements have frequently been struck down as contrary to public policy, unconscionable substantively, and/or unconscionable procedurally on account of various features of such agreements.

In Sonic-Calabasas, Inc. v. Moreno, California Supreme Court the again found an arbitration agreement to be unenforceable as written. The court held arbitration agreement at issue in effect impermissibly required employees to waive their right to pursue claims for allegedly unpaid wages by submitting such claims to the California Labor Commissioner by a process sometimes referred to as a "Berman hearing" whereby claims are addressed at an informal hearing conducted by the Labor Commissioner. That process permits either an employee or an employer dissatisfied with the results of the Berman hearing to "appeal" the result to the Superior Court for a new trial conducted by the court.

In finding the arbitration agreement unenforceable as written, the Supreme Court held that requiring employees to waive their statutory rights to pursue wage claims via a Berman hearing is contrary to public policy and conscionable and therefore unenforceable. However, the Court held also that an employer can require employees to arbitrate such disputes after a Berman hearing has been conducted. In other words, the Court held the arbitration agreement would be enforceable after a Berman hearing is conducted if either side is unsatisfied with the result of the Berman hearing.

Having an enforceable arbitration agreement can help make an individual discrimination, harassment, or retaliation case less attractive to a plaintiff's attorney. Plaintiff's attorneys sometimes rely on the prospect of a jury trial to increase the value of such a case. However, the law regarding what provisions of an employment arbitration agreement will be enforced and what provisions will not be enforced frequently changes as California appellate courts issue reported decisions regarding the enforceability of such arbitration agreements.  Employers therefore should have such agreements reviewed periodically by competent employment counsel.

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