United States: Through The Lens Of Concepcion: California Supreme Court Revisits The Validity Of Agreements Requiring Employee Waiver Of Wage Claim Administrative Processes

Almost one year after the U.S. Supreme Court summarily vacated the original 2011 Sonic-Calabasas opinion (Sonic I1), the California Supreme Court issued its opinion on remand in Sonic-Calabasas A, Inc. v. Moreno (Sonic II2). 

The Court's five-to-two Sonic II majority opinion conceded that U.S. Supreme Court precedent and the Federal Arbitration Act (FAA) preclude California courts from striking down arbitration agreements simply because they deny an employee's access to administrative wage claim (Berman) hearings in lieu of an arbitral process.

Despite the Court's recognition that "courts cannot impose unconscionability rules that interfere with arbitral efficiency,"Sonic II affirms California courts' continuing authority to invalidate arbitration agreements that are unfair (unconscionable) to employees.

The Case's History

In Sonic I, the Court held that arbitration agreements that required employees to waive the right to a Berman hearing (an administrative hearing before the Labor Commissioner in wage disputes) were categorically unenforceable as contrary to public policy and were also unconscionable.

In October 2012, the U.S. Supreme Court summarily vacated Sonic I for reconsideration in light of the U.S. Supreme Court's 2011 decision in AT&T Mobility LLC v. Concepcion (Concepcion).3 In Concepcion, the U.S. Supreme Court overruled a California Supreme Court holding that state public policies supporting the availability of class-wide relief for small individual fraud claims trumped an arbitration clause that required bilateral, non-class arbitration only.

The Sonic II Decision

Sonic II's core holding is that the FAA pre-empts Sonic I's ruling categorically prohibiting an adhesive arbitration agreement from requiring an employee to waive access to a Berman hearing.  However, in an important counterpoint, the majority opinion also reiterated the availability of the unconscionability defense in analyzing the validity of an arbitration agreement under California law. The decision described the unconscionability doctrine as "the absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party."  Any arbitral remedy imposed by an employer in an agreement with an employee must be "accessible and affordable."

The majority opinion, authored by Justice Goodwin Liu, provided examples of unconscionable agreements which would not "interfere[ ] with the fundamental attributes of arbitration," as Concepcion proscribed, including contracts that had provisions requiring a $50,000 threshold for an arbitration appeal, damages limitations, one-way recovery of attorneys' fees for a prevailing party, and $8,000 in mandated administrative fees for an employee to commence arbitration.

The majority's opinion suggests that enforceability does not require a perfect arbitration process: "[t]he unconscionability inquiry is not a license for courts to impose their renditions of an ideal arbitral scheme."  The "unconscionability doctrine does not mandate the adoption of any particular form of dispute resolution mechanism, and courts may not decline to enforce an arbitration agreement simply on the ground that it appears to be a bad bargain or that one party could have done better."  The majority also reiterated that a determination of unconscionability was normally determined on motion procedure, not on taking live testimony of witnesses.

However, the majority also listed six features of a Berman hearing that may be waived in an appropriately drafted arbitration agreement, so long as arbitration remains "accessible and affordable" for the employee:

The Berman statutes include various features designed to lower the costs and risks for employees in pursuing wage claims, including procedural informality, assistance of a translator, use of an expert adjudicator who is authorized to help the parties by questioning witnesses and explaining issues and terms, and provisions on fee shifting mandatory undertaking, and assistance of the Labor Commissioner as counsel to help employees defend and enforce any award on appeal. Waiver of these protections does not necessarily render an arbitration agreement unenforceable, nor does it render an arbitration agreement unconscionable per se. But waiver of these protections in the context of an agreement that does not provide an employee with an accessible and affordable arbitral forum for resolving wage disputes may support a finding of unconscionability."

(Emphasis added.)  Further, the majority also suggested that an appropriately drafted statute could create additional procedural requirements for arbitration agreements (applicable to wage claims) that would not contravene the FAA.

In responding to the dissent's claims that the majority opinion fails to provide a bright-line test of what constitutes substantive unconscionability in an arbitral agreement covering wage claims, instead relying on undefined standards such as "accessible," "affordable," "low-cost," "speedy," and "effective," the majority said that common-law courts make case-by-case determinations using such terms daily.  The majority also quoted with approval the statement in the concurring opinion that "[this decision] does not require trial courts to adopt a new procedure or analytical approach when an unconscionability defense concerns an arbitration provision in an employment contract."

As he had in Sonic I, Justice Chin dissented, although with one less vote than he had in Sonic I.  Justice Chin did agree with the majority that Sonic I should be reversed as violative of the FAA.  However, he also contended that the plaintiff had forfeited his unconscionability claim by failing to raise and pursue it in the trial court (one basis for his Sonic Idissent).  The major portion of his dissent was a detailed critique of why the majority's unconscionability defense was "a case-by-case, hopelessly vague, and indeterminable assessment."  Justice Chin (and the concurring justice) also criticized the majority's refusal to adopt the standard, in determining whether an arbitration agreement was unconscionable, that an agreement's terms are so one-sided as to "shock the conscience" of the reviewing court.

Going Forward

The case was remanded to the trial court to develop an evidentiary record on the former employee's defense of unconscionability of the arbitration agreement.

Sonic II's 70-page majority opinion is the California Supreme Court's latest pronouncement on the validity of mandatory arbitration agreements that are attacked on unconscionability grounds.  The U.S. Supreme Court observed in Concepcion that "California's courts have been more likely to hold contracts to arbitrate unconscionable than other contracts,"4 and whether Sonic II will ultimately be interpreted to reverse or advance that trend remains to be seen.  Two cases currently under review by the California Supreme Court may provide California employers further guidance on the application of the defense of FAA preemption: Iskanian v. CLS Transportation of Los Angeles5 and Sanchez v. Valencia Holding Co. LLC.6

Next Steps For Employers

  1. If an employer has an arbitration agreement with an employee, the employer should review it to confirm that it complies with current California case law, including Sonic II, assessing the validity of such an agreement against an unconscionability defense,7 and that it includes wage claims within its scope.  Arbitration agreements can be effective tools for minimizing legal risks, but they are of no value if they cannot be enforced if challenged.
  2. If an enterprise's arbitration agreement incorporates the rules of an outside provider, (such as the American Arbitration Association, JAMS, or ADR Services), the enterprise should determine whether its rules and processes meet the standards suggested by the Sonic II decision. An employer is free to draft rules that supplement or even replace provider rules to ensure compliance with applicable law.
  3. If the enterprise currently has no arbitration agreement, the enterprise should assess whether such an agreement could make dispute resolution more efficient and cost-effective.
  4. Employers should remind those in the enterprise who will first receive notice of any California Labor Commissioner claims of former employees to alert counsel of the claims so that a determination can be made whether to proceed administratively or seek enforcement of an agreement to arbitrate the dispute.

Footnotes

1. 51 Cal.4th 659; see also Henry Lederman and Christopher Cobey, California Supreme Court Holds Right to File Wage Claim with State Labor Commissioner Trumps Pre-Dispute Arbitration Provision, Littler ASAP (Mar. 1 2011).

2.  __ Cal. 4th ___; 2013 Cal. LEXIS 8111.

3. 563 U.S. __, 131 S.Ct. 1740; see Henry Lederman, Supreme Court Finds California Class Action Arbitration Waiver Enforceable, Littler ASAP (Apr. 27, 2011).

4. 131 S. Ct. at 1747.

5. The Supreme Court's online case summary states: "This case presents the following issues: (1) Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S. Ct. 1740, 179 L.Ed.2d 742] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court's decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?"

6. The Supreme Court's online case summary states:  "This case includes the following issue: Does the Federal Arbitration Act (9 U.S.C. § 2), as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U. S. __, 131 S.Ct. 1740, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?"

7. See 2011 Littler ASAPs, supra notes 1 and 2.  See also Rob Friedman, Narrow Supreme Court Ruling Upholds Arbitrator's Decision that Parties' Agreement Permits Class Arbitration, Littler ASAP (Jun. 12, 2013), Edward Berbarie, Supreme Court's Amex Decision Creates High Hurdle for Plaintiffs Seeking to Invalidate Arbitration Agreements with Class Action Waivers, Littler ASAP (Jun. 20, 2013), and discussion in Littler's 2013-2014 The California Employer, Chapter 6 ("The Evolution of California Law on Arbitration Agreements," pp. 352-355; see also "Class Action Waivers in California Employment Arbitration Agreements," pp. 349-351).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Christopher E. Cobey
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions