This blog post was authored by Hengameh S. Safaei
In a long-awaited and lengthy 104-page decision, the California Supreme Court in Sonic-Calabasas, Inc. v. Moreno (Sonic II) has retreated from its earlier holding in Sonic–Calabasas A, Inc. v. Moreno (Sonic I), in which the Court had held as a bright-line rule that an employer cannot require employees to waive their right to a “Berman hearing” in an arbitration agreement imposed as a condition of employment. A “Berman hearing” is a dispute resolution forum established by the Legislature to assist employees in settling wage disputes.
Frank Moreno was an employee of Sonic–Calabasas A, Inc. After resigning from his employment, he filed an administrative wage claim with the Labor Commissioner for alleged unpaid vacation wages and penalties. The filing of such a claim is the first step toward a Berman hearing. Sonic sought to compel arbitration of Moreno’s claim and to dismiss his pending administrative action. In doing so, Sonic relied on the parties’ broad arbitration agreement in which Moreno had waived the benefits of the Berman procedure. The Superior Court denied Sonic’s request for arbitration, finding that the waiver of the Berman procedure violated public policy. The Court of Appeal reversed. The case, “Sonic I,” made its way to the California Supreme Court, which held that the arbitration provision was both contrary to public policy and unconscionable – and therefore unenforceable – because it precluded Moreno from pursuing a Berman hearing before submitting his claim for vacation pay to arbitration. The Court further held that its rule prohibiting waiver of a Berman hearing is not preempted by the Federal Arbitration Act (“FAA”).
In response to instructions from the United States Supreme Court, and in light of the Supreme Court’s pivotal holding in AT&T Mobility v. Concepcion, the California Supreme Court revisited Sonic I and acknowledged in Sonic II that the FAA does preempt its rule prohibiting waiver of a Berman hearing in an arbitration agreement. “[W]e conclude that because compelling the parties to undergo a Berman hearing would impose significant delays in the commencement of arbitration, the approach we took in Sonic I is inconsistent with the FAA.”
Despite this tough concession, the Court emphasized that trial courts should continue to enforce unconscionability rules: “Although a court may not refuse to enforce an arbitration agreement imposed on an employee as a condition of employment simply because it requires the employee to bypass a Berman hearing, such an agreement may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer.” Because evidence relevant to the unconscionability issue was not developed at the trial court level, the Court sent the case back to the trial court to determine whether the arbitration agreement at issue was unconscionable so as to be unenforceable.
Although following Sonic II there is no longer a bright-line rule prohibiting an employee’s waiver of the Berman procedure in an arbitration agreement, employers should carefully analyze the implications of such waivers and other provisions in their arbitration agreements to ensure that they are not invalidated on the basis that they are unreasonably one-sided in favor of the employer.