February 26, 2014

Another arbitration showdown?

By Deborah J. La Fetra Senior Attorney

Adults have a constitutional right to freely enter into contracts, such as sales or employment contracts where the parties agree to resolve their disputes by arbitration.  The United States Supreme Court has repeatedly upheld this contractual freedom, but the California courts stubbornly refuse to uphold arbitration contracts.  Most recently, the California Supreme Court rejected Frank Moreno’s employment contract with Sonic-Calabasas A (an Acura car dealership) because it required that disputes relating to his employment be resolved by arbitration rather than in an administrative hearing with the Labor Commissioner (a so-called “Berman hearing”).

This is actually the second time the California Supreme Court reviewed this contract.  The first time, the California court held that waiver of the administrative hearing was categorically unconscionable and against public policy.  The United States Supreme Court vacated that decision and told the California court to reconsider in light of AT&T Mobility v. Concepcion, which held that any state common law rule or statute that “stands as an obstacle to the accomplishment and execution of the full purposes and objectives” of the Federal Arbitration Act is preempted.  On remand, the California Supreme Court creatively cobbled together elements of unconscionability caselaw with state Labor Code statutes, and replaced the categorical rule with a requirement that “an adhesive arbitration agreement that compels the surrender of Berman protections as a condition of employment [must] provide for accessible, affordable resolution of wage disputes.”  This decision essentially forces California employers to allow employees to file for Berman hearings instead of arbitration, or set up a dispute resolution process that mirrors the Berman hearings, upon penalty of having employment contracts invalidated as unconscionable.

Once again, Sonic is seeking review in the Supreme Court because the California decision improperly singles out arbitration agreements in employment contracts for special, adverse, treatment.  PLF filed an amicus brief supporting the petition for a writ of certiorari last week.  Moreno originally told the Court that he would pass on his opportunity to file a response to the petition, and the Court had scheduled the case to be considered at its conference this Friday, February 28. Today, however, the Court requested that Moreno file a response.  This is a hopeful sign, because the Court typically would not grant a petition without hearing from both sides.  Stay tuned….

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