Employment Law Alert – CA Supreme Court Strikes Down Arbitration Agreement
by Kara L. Arguello
August 01, 2011
In late February 2011, the California Supreme Court held that where an employee was required to sign an arbitration agreement with his employer, and the arbitration agreement stated that the employee waived his right to a hearing before the California Labor Commissioner regarding wage claims, the entire arbitration agreement was unenforceable. See Sonic-Calabasis A, Inc. v. Moreno.
As a condition of his employment with Sonic-Calabasis A, Inc. (“Sonic-Calabasis”), Moreno signed an agreement requiring both employer and employee to submit any employment disputes to binding arbitration. After his employment with Sonic-Calabasis ended, Moreno filed an administrative wage claim with the California Labor Commissioner for failure to pay his accrued but unused vacation. Labor Code §98 gives an employee who has filed a wage claim the right to have a hearing on his claims before the Labor Commissioner, also known as a “Berman hearing.”
Before the Berman hearing could be held before the Labor Commissioner, Sonic-Calabasis petitioned the state court to compel arbitration of the wage claim and dismiss Moreno’s administrative action. The California Supreme Court held that the clause in the employment agreement waiving the right to a hearing before the Labor Commissioner was unconscionable and contrary to public policy.
The Court explained that a law which is established for a public reason cannot be contravened by a private agreement. The California Labor Code, and specifically the mechanisms of section 98 have a public purpose in that they were designed to protect workers. Further, the law has an additional public benefit of reducing the costs and risks of pursuing a wage claim for the average worker. Therefore, permitting employers to require employees to waive those rights as a condition of employment would thwart the public purpose behind the statute and render the statute itself meaningless.
The Sonic-Calabasis decision will affect many companies in California. Employers who have arbitration agreements with employees should review those contracts to determine whether they include a waiver of the right to proceed to a Berman hearing for wage claims.
If you have any questions regarding these changes or how they affect your business, please contact Kara Arguello or any member of Berliner Cohen’s Employment Law Group.
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