California Employment Law Report : Los Angeles Employment Lawyer & Attorney : Anthony Zaller Law Firm : California Employment Law Report

I’ve recently written a series of posts regarding the Berman hearing process available for employees to resolve wage disputes before the Labor Commissioner. See previous posts: Overview Of Berman Hearings Before The Labor Commissioner and How To Prepare For a Berman Hearing. But can an employer have an employee sign an arbitration agreement in which the employee agrees to waive any rights to a Berman hearing, and all claims against the employer must proceed directly to arbitration? A good question, to which there is not currently an answer. The issue is currently under review by the California Supreme Court in the case Sonic-Calabasas A, Inc. v. Moreno. 

This also leads to the issue of why might an employer want to have all claims proceed directly to arbitration, and skip-over the Berman hearing. As the California Supreme Court stated in its initial review of the Sonic-Calabasas case in early 2011, the Berman hearing provides the employee a number of benefits:

These provisions include the Labor Commissioner's representation in the superior court of employees unable to afford counsel, the requirement that the employer post an undertaking in the amount of the award, and a one-way attorney fee provision that requires an employer that is unsuccessful in the appeal to pay the employee's attorney fees.

It is an interesting background on how the Sonic-Calabasas case proceeded through the Courts. The California Supreme Court has already ruled on the Sonic-Calabasas case in the early part of 2011. At that time, the Court held that a waiver of the Berman hearing process in the arbitration agreement was unconscionable and contrary to public policy, and was not preempted by the Federal Arbitration Act (FAA). Therefore, the California Supreme Court ruled that this waiver of the Berman hearing process was not an enforceable provision of the arbitration agreement. However, shortly after this ruling, the United States Supreme Court issued a ruling in AT&T Mobility v. Concepcion, a separate case out of California in which the US Supreme Court held that the FAA preempted California law and found that a class action waiver provision in arbitration agreements can be enforceable. For more information on AT&T Mobility you can listen to my podcast on the case here. The employer in Sonic-Calabasas A v. Moreno filed an appeal with the US Supreme Court to review the California Supreme Court’s ruling invalidating the Berman hearing waiver in the arbitration agreement. The US Supreme Court granted review, but recently sent the case back to the California Supreme Court to review the case again and to apply the standards set forth in AT&T Mobility v. Concepcion. So, we are waiting for the California Supreme Court to review the issue once again to have a definitive answer to the question.

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You may also subscribe to the California Employment Law Podcast through iTunes by clicking here. 

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In Roman v. Superior Court, the Court of Appeals upheld an arbitration agreement where the employee challenged the agreement by arguing that the agreement was unenforceable because it only obligated the employee to arbitrate his claims. The court disagreed with plaintiff’s argument and explained that the mere inclusion of the words “I understand” or “I agree” does not destroy the mutuality of an arbitration agreement. Roman v. Superior Court, 172 Cal.App.4th 1462, 1473 (2009).

The arbitration agreement at issue in the case provided:

I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by the company, that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with the company, whether during or after that employment, will be submitted to binding arbitration. I agree that such arbitration shall be conducted under the rules of the American Arbitration Association. This application contains the entire agreement between the parties with regard to dispute resolution, and there are no other agreements as to dispute resolution, either oral or written.

Id. at 1467 (citation omitted). The agreement was contained in an employment application and clearly provided: “Please Read Carefully, Initial Each Paragraph and Sign Below.” Plaintiff also initialed next to the paragraph that contained the arbitration agreement. The court found that simply because the agreement in that case was an adhesion contract (or on a “take-it-or-leave-it” basis), it still did not render the agreement unenforceable because the agreement was fair. Even though the agreement contained the words “I agree”, this did not render the arbitration agreement to only bind the employee and not the employer to the arbitration agreement.

The Roman court also noted that even if the agreement “were somehow ambiguous on this point, given the public policy favoring arbitration [citation] and the requirement we interpret the provision in a manner that renders it legal rather than void [citation], we would necessarily construe the arbitration agreement as imposing a valid, mutual obligation to arbitrate.” Roman, supra, 172 Cal.App.4th at p. 1473.  Employers should consider the pros and cons of having employees enter into arbitration agreements, and as this case illustrates, courts are likely to enforce the agreement if it is properly drafted. 

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Plaintiff, who was a trash truck driver for Athens Disposal Company, Inc., filed a class action against the company alleging violations of the Labor Code.  Plaintiff asserted the following causes of action against Athens:

1. Failing to pay overtime.
2. Failing to provide meal periods and to pay an additional hour of compensation per workday to employees who missed a meal period.
3. Failing to provide rest periods and to pay an additional hour of compensation per workday to employees who missed a rest period.
4. Failing to provide necessary payroll information to employees and failing to maintain records on each employee showing all hours worked and all meal periods taken.
5. Civil penalties authorized by the Private Attorneys General Act of 2004 (PAGA) for violating the Labor Code.
6. Violation of the California Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.).

Immediately after the lawsuit was filed, Athens filed a petition to compel arbitration based on a written agreement with plaintiff. The arbitration agreement contained a provision waiving class arbitrations and also precluded an employee from acting in “a private attorney general capacity,” which would bar plaintiff’s enforcement of the Labor Code on behalf of other employees.

The court held that the entire arbitration agreement was not enforceable:

We conclude that the class arbitration waiver is unconscionable with respect to the alleged violations of the meal and rest period laws given “the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights.” (Gentry v. Superior Court (2007) 42 Cal.4th 443, 463 (Gentry).) In addition, because the arbitration agreement prevents plaintiff from acting as a private attorney general, it conflicts with the Labor Code Private Attorneys General Act of 2004 (PAGA) (§§ 2698–2699.5) — an act that furthers Gentry’s goal of comprehensively enforcing state labor laws through statutory sanctions (see Gentry, supra, 42 Cal.4th at pp. 462–463).

The court noted that the class action waiver in the arbitration agreement by itself was unenforceable, which may have been severed from the arbitration agreement. However, when coupled with the employee’s waiver of action as a private attorney general, the entire agreement was unenforceable.

The case, Franco v. Athens Disposal Company, Inc., can be downloaded for a short period of time from the court’s website in PDF or Word.
 

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