California Supreme Court Issues key Arbitration Ruling

Today, the California Supreme Court issued its opinion in Sonic-Calabasas A, Inc. v. Moreno, No. S174475 (October 17, 2013), holding that the Federal Arbitration Act preempts California's rule categorically prohibiting waiver of a Berman hearing in a pre-dispute arbitration agreement imposed on an employee as a condition of employment.

As California employers may recall, the California Supreme Court previously held that it is against public policy and unconscionable for an employer to require that, as a condition of employment, an employee waives the right to a dispute resolution forum established by the Legislature to assist employees in recovering wages owed (such as a Berman hearing). The California Supreme Court held that if one of the parties was dissatisfied with the result of the Berman hearing, it could move to arbitrate the wage dispute consistent with the arbitration agreement, just as a dissatisfied party could obtain a trial in court without such an agreement.

Since then, the U.S. Supreme Court granted certiorari in this case and vacated the judgment. The case was remanded for consideration in light of the U.S. Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740], wherein the Court clarified the limitations imposed by the FAA on a state's ability to enforce its rules of unconscionability on parties to arbitration agreements.

The California Supreme Court in today's decision holds that state courts may continue to enforce unconscionability rules that do not interfere with the fundamental attributes of arbitration. While a court cannot refuse to enforce an arbitration agreement simply because it requires the employee to bypass a Berman hearing, the agreement may still be found to be unconscionable if it is unreasonably one-sided in favor of the employer, for instance.