- Make sure arbitration agreements are stand-alone documents
- Have an attorney review the terms of the agreement to ensure they are not likely to be held unconscionable if challenged
- Ensure that all employees have signed and dated the most recent version of such an agreement
URGENT CA: California Employer Arbitration Agreements May Require Waiver of a Berman Hearing
In Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659 (Sonic I), a California Court of Appeals ruled that it is contrary to public policy and unconscionable for an employer to require an employee, as a condition of employment, to waive the right to a Berman hearing, a dispute resolution forum established by the Legislature to assist employees in recovering wages owed. The basis for the decision was the court’s reasoning that prohibiting waiver of a Berman hearing does not discriminate against arbitration agreements because they did not invalidate the arbitration agreement at issue; rather, if one of the parties is dissatisfied with the result of the Berman hearing, it can move to arbitrate the wage dispute consistent with the arbitration agreement, just as a dissatisfied party can obtain a trial in court without such an agreement. Therefore, requiring a Berman hearing despite an existing arbitration agreement is not preempted by the Federal Arbitration Act (FAA). The United States Supreme Court vacated the judgment, and asked that the lower court reconsider the case in light of AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion). In Concepcion, the high court clarified the limitations that the FAA imposes on a state’s capacity to enforce its rules of unconscionability when analyzing an arbitration agreement. Unconscionability is legal terms referring to whether or not a particular contract is overly burdensome or onerous on one particular party with weaker bargaining position. The ruling in Conception was in favor of upholding arbitration agreements unless clearly unconscionable. In light of Concepcion, the California Appellate Court ruled that because compelling the parties to undergo a Berman hearing would impose significant delays in the commencement of arbitration, it would be a violation of the FAA to require such a hearing despite the existence of an arbitration agreement prohibiting such a hearing. The Court ruled that the FAA preempts our state-law rule categorically prohibiting waiver of a Berman hearing in a pre-dispute arbitration agreement imposed on an employee as a condition of employment. Employers should nonetheless keep in mind, that although a court may not refuse to enforce an arbitration agreement imposed on an employee as a condition of employment simply because it requires the employee to bypass a Berman hearing, such an agreement may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer. The fundamental fairness of the bargain, as with all contracts, will depend on what benefits the employee received under the agreement’s substantive terms and the totality of circumstances surrounding the formation of the agreement. Recommendations: