Lead Opinion
Opinion
In Sonic-Calabasas A, Inc. v. Moreno (2011)
The United States Supreme Court granted certiorari in this case, vacated the judgment, and remanded the case to this court for consideration in light of AT&T Mobility LLC v. Concepcion (2011)
At the same time, we conclude that state courts may continue to enforce unconscionability rules that do not “interfere^ with fundamental attributes of arbitration.” (Concepcion, supra,
The employee in this case contends that the particular arbitration scheme at issue is unconscionable, while the employer contends that its arbitration agreement offers adequate protections and advantages to facilitate the employee’s claim and is not unreasonably one-sided. Because evidence relevant to the unconscionability claim was not developed below, we instruct the Court of Appeal to remand to the trial court to determine whether the present arbitration agreement is unconscionable under the principles set forth in this opinion.
I.
Frank Moreno is a former employee of Sonic-Calabasas A, Inc. (Sonic), which owns and operates an automobile dealership. As a condition of his employment with Sonic, Moreno signed a document entitled “Applicant’s Statement & Agreement.” The agreement set forth a number of conditions of employment, including consent to drug testing and permission to contact former employers, as well as a provision making the employment at will. The agreement also contained a paragraph governing dispute resolution, which required both parties to submit employment disputes to “binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec. 1280 et seq. . . .).” The arbitration provision applied to “all disputes that may arise out of the employment context. . . that either [party] may have against the other which would otherwise require or allow resort to any court or other governmental dispute resolution forum[,] . . . whether based on tort, contract, statutory, or equitable law, or otherwise.” The provision specified that it did not apply to claims brought under the National Labor Relations Act (29 U.S.C. § 151 et seq.) or the California Workers’ Compensation Act, or to claims before the Employment Development Department. The provision further stated that the employee was not prevented from “filing and pursuing administrative proceedings only before the California Department of Fair Employment and Housing or the U.S. Equal Opportunity Commission.”
In December 2006, after leaving his position with Sonic, Moreno filed an administrative wage claim with the Labor Commissioner for unpaid vacation pay pursuant to Labor Code section 98 et seq. (All statutory references are to the Labor Code unless otherwise indicated.) Moreno alleged he was entitled to unpaid “[v]acation wages for 63 days earned 7/15/02 to 7/15/06 at the rate of $441.29 per day.” The filing of such a claim is the first step toward obtaining a Berman hearing.
In February 2007, Sonic petitioned the superior court to compel arbitration of the wage claim and to dismiss the pending administrative action, arguing that Moreno waived his right to a Berman hearing in the arbitration agreement. The Labor Commissioner intervened on Moreno’s behalf (§ 98.5), and Moreno adopted the Labor Commissioner’s arguments. The Labor Commissioner argued that the arbitration agreement, properly construed, did not preclude Moreno from filing an administrative wage claim under section 98 et seq. According to the Labor Commissioner, resort to a Berman hearing was compatible with the arbitration agreement because the hearing could be followed by arbitration in lieu of a de novo appeal in the superior court under section 98.2, subdivision (a). The Labor Commissioner further argued that interpreting the arbitration agreement to waive a Berman hearing would violate public policy, relying on Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
The superior court denied the petition to compel arbitration as premature. Citing Armendariz, the court said that as a matter of “basic public policy . . . until there has been the preliminary non-binding hearing and decision by the Labor Commissioner, the arbitration provisions of the employment contract are unenforceable, and any petition to compel arbitration is premature and must be denied.”
Sonic appealed. The Labor Commissioner did not participate in the appeal. During the briefing period in the Court of Appeal, the United States Supreme
We granted Moreno’s petition for review. As discussed below, we held in Sonic I that although Moreno could be compelled to arbitrate, he could not be required to waive his right to a Berman hearing before arbitration. Accordingly, we reversed the Court of Appeal and ordered reinstatement of the trial court’s denial of Sonic’s petition to compel arbitration. Sonic then petitioned the United States Supreme Court for a writ of certiorari. The high court granted the petition, vacated our judgment, and remanded the case to this court “for further consideration in light of AT&T Mobility LLC v. Concepcion,
II.
We begin by reviewing the Berman statutes and our opinion in Sonic I.
A.
In Sonic I, supra,
“Once an employee files a complaint with the Labor Commissioner for nonpayment of wages, section 98, subdivision (a) ‘ “provides for three alternatives: the commissioner may either accept the matter and conduct an administrative hearing [citation], prosecute a civil action for the collection of wages and other money payable to employees arising out of an employment relationship [citation], or take no further action on the complaint. [Citation.]” ’ (Murphy v. Kenneth Cole Productions, Inc. (2007)
“A Berman hearing is conducted by a deputy [labor] commissioner, who has the authority to issue subpoenas. (Cal. Code Regs., tit. 8, §§ 13502, 13506.) ‘The Berman hearing procedure is designed to provide a speedy, informal, and affordable method of resolving wage claims. In brief, in á Berman proceeding the commissioner may hold a hearing on the wage claim; the pleadings are limited to a complaint and an answer; the answer may set forth the evidence that the defendant intends to rely on . . . ; if the defendant fails to appear or answer no default is taken and the commissioner proceeds to decide the claim, but may grant a new hearing on request. (§ 98.) The commissioner must decide the claim within 15 days after the hearing. (§ 98.1.)’ [Citation.] The hearings are not governed by the technical rules of evidence, and any relevant evidence is admitted ‘if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs.’ (Cal. Code Regs., tit. 8, § 13502.) The hearing officer is authorized to assist the parties in cross-examining witnesses and to explain issues and terms not understood by the parties. (DLSE, Policies and Procedures for Wage Claim Processing, supra, at p. 4.) The parties have a right to have a translator present. (Ibid.; see § 105 . . . .)
“Once judgment is entered in the Berman hearing, enforcement of the judgment is to be a court priority. (§ 98.2, subd. (e).) The Labor Commissioner is charged with the responsibility of enforcing the judgment and ‘shall
“Within 10 days after notice of the decision any party may appeal to the appropriate court, where the claim will be heard de novo; if no appeal is taken, the commissioner’s decision will be deemed a judgment, final immediately, and enforceable as a judgment in a civil action. (§ 98.2.) If an employer appeals the Labor Commissioner’s award, ‘[a]s a condition to filing an appeal pursuant to this section, an employer shall first post an undertaking with the reviewing court in the amount of the order, decision, or award. The undertaking shall consist of an appeal bond issued by a licensed surety or a cash deposit with the court in the amount of the order, decision, or award.’ (§ 98.2, subd. (b).) The purpose of this requirement is to discourage employers from filing frivolous appeals and from hiding assets in order to avoid enforcement of the judgment. (Sen. Com. on Labor and Industrial Relations, Analysis of Assem. Bill No. 2772 (2009-2010 Reg. Sess.) as amended Apr. 8, 2010, p. 4.)
“Under section 98.2, subdivision (c), ‘If the party seeking review by filing an appeal to the superior court is unsuccessful in the appeal, the court shall determine the costs and reasonable attorney’s fees incurred by the other parties to the appeal, and assess that amount as a cost upon the party filing the appeal. An employee is successful if the court awards an amount greater than zero.’ This provision thereby establishes a one-way fee-shifting scheme, whereby unsuccessful appellants pay attorney fees while successful appellants may not obtain such fees. [Citation.] This is in contrast to section 218.5, which provides that in civil actions for nonpayment of wages initiated in the superior court, the ‘prevailing party’ may obtain attorney fees.
“Furthermore, the Labor Commissioner ‘may’ upon request represent a claimant ‘financially unable to afford counsel’ in the de novo proceeding and ‘shall’ represent the claimant if he or she is attempting to uphold the Labor Commissioner’s award and is not objecting to the Commissioner’s final order. (§ 98.4.) Such claimants represented by the Labor Commissioner may still collect attorney fees pursuant to section 98.2, although such claimants have not, strictly speaking, incurred attorneys fees, because construction of the statute in this manner is consistent with the statute’s goals of discouraging unmeritorious appeals of wage claims. [Citation.]” (Sonic I, supra, 51 Cal.4th at pp. 671-674, italics & fn. omitted.)
In sum, the Berman statutes provide important benefits to employees by reducing the costs and risks of pursuing a wage claim in several ways. First, the Berman hearing itself provides an accessible, informal, and affordable mechanism for laypersons to seek resolution of such claims. (See
B.
In considering whether a Berman waiver violates public policy, Sonic 1 first reviewed the law governing mandatory employment arbitration agreements, i.e., arbitration agreements that are conditions of new or continuing employment. As we explained, “[i]n Armendariz, supra,
We then concluded that the protections afforded by a Berman hearing may not be waived as a condition of employment; “There is no question that the lawful payment of wages owed is not merely an individual right but an important public policy goal. . . . ‘Civil Code section 3513 provides, in pertinent part, that: “[a]nyone may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” [][] The determination of whether a particular statute is for public or private benefit is for the court in each case (1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 645, p. 586). The provisions of the Labor Code, particularly those directed toward the payment of wages to employees entitled to be paid, were established to protect the workers and hence have a public purpose. As was pointed out in In re Trombley (1948)
We went on to explain: “Although the statutory protections that the Berman hearing and the posthearing procedures afford employees were added piecemeal over a number of years, their common purpose is evident: Given the dependence of the average worker on prompt payment of wages, the Legislature has devised the Berman hearing and posthearing process as a means of affording an employee with a meritorious wage claim certain advantages, chiefly designed to reduce the costs and risks of pursuing a wage claim, recognizing that such costs and risks could prevent a theoretical right from becoming a reality. These procedures, including the employer undertaking and the one-way fee provision, also deter employers from unjustifiably prolonging a wage dispute by filing an unmeritorious appeal. This statutory regime therefore furthers the important and long-recognized public purpose of ensuring that workers are paid wages owed. The public benefit of the Berman procedures, therefore, is not merely incidental to the legislation’s primary purpose but in fact central to that purpose. Nor can there be any doubt that permitting employers to require employees, as a condition of employment, to waive their right to a Berman hearing would seriously undermine the efficacy
We rejected Sonic’s argument that “even if a nonarbitration clause that required a Berman hearing waiver is contrary to public policy, an arbitration clause containing the same waiver would not be, because arbitration offers the same or similar advantages as does the Berman hearing process.” (Sonic I, supra,
We therefore concluded that “an employee going directly to arbitration will lose a number of benefits and advantages. He or she will not benefit from the Labor Commissioner’s settlement efforts and expertise. He or she must pay for his or her own attorney whether or not he or she is able to afford it—an attorney who may not have the expertise of the Labor Commissioner. Moreover, what matters to the employee is not a favorable arbitration award per se but the enforcement of that award, and an employee going directly to arbitration will have no special advantage obtaining such enforcement. Nor is there any guaranty that the employee will not be responsible for any successful employer’s attorney fees, for under section 218.5, an employee who proceeds directly against an employer with a wage claim not preceded by a Berman hearing will be liable for such fees if the employer prevails on appeal. In short, the Berman hearing process, even when followed by binding arbitration, provides on the whole substantially lower costs and risks to the
We also rejected Sonic’s argument that because employees have the option of pursuing a Berman hearing or going directly to court (§ 218), Berman hearings must be waivable in a predispute agreement. “The purpose of the Berman hearing statutes is to empower wage claimants by giving them access to a Berman hearing with all of its advantages. Allowing an employee the freedom to choose whether to resort to a Berman hearing when a wage claim arises, after evaluating in light of the particular circumstances whether such a hearing is advantageous, is wholly consistent with the public policy behind the Berman hearing statutes. A requirement that the employee surrender the option of a Berman hearing as a condition of employment is not. As we recognized in Armendariz, our concern is with the impermissible waiver of certain rights and protections as a condition of employment before a dispute has arisen. (See Armendariz, supra,
C.
Sonic I further held that a Berman waiver is unconscionable. As we explained: “One common formulation of unconscionability is that it refers to ‘ “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” ’ [Citation.] As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. ‘The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, “ ‘which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ ” ’ (Little, supra,
“ ‘Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided. One such form, as in Armendariz, is the arbitration agreement’s lack of a “ ‘modicum of bilaterality,’ ” wherein the employee’s claims against the employer, but not the employer’s claims
Applying these principles, we first observed that “the arbitration agreement was a contract of adhesion indisputably imposed as a condition of employment” and that “contract terms imposed as a condition of employment are particularly prone to procedural unconscionability.” (Sonic I, supra, 51 Cal.4th at pp. 685-686.) “ ‘[I]n the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.’ (Armendariz, supra,
“Furthermore, for reasons suggested above, significant substantive unconscionability is also present. As explained, Berman hearing and posthearing procedures were designed to provide wage claimants with meritorious claims unique protections that lower the costs and risks of pursuing such claims, leveling a playing field that generally favors employers with greater resources and bargaining power. Requiring employees to forgo these protections as a condition of employment can only benefit the employer at the expense of the employee. Nor can we say, as also explained, that the benefits the employee gains from arbitration compensates for what he or she loses by forgoing the option of a Berman hearing.
“In sum, rather than being justified by ‘legitimate commercial needs’ (see Armendariz, supra,
Although we found the Berman waiver unconscionable and contrary to public policy, we did not invalidate the arbitration agreement. Instead, we held that an arbitration agreement may be enforced so long as arbitration is preceded by the option of a Berman hearing at the employee’s request. If the employee chooses to have a Berman hearing, then the post-Berman hearing protections for employees would apply in arbitration: “A party to a Berman hearing seeking a de novo appeal via arbitration pursuant to a prior agreement rather than through a judicial proceeding would initially file an appeal in superior court pursuant to section 98.2, subdivision (a), together with a petition to compel arbitration. The superior court would determine whether the appeal is timely and whether it comports with all the statutory requirements, such as the undertaking requirement in subdivision (b). If so, and if the petition to compel arbitration is unopposed, or found to be meritorious, the trial court will grant the petition. The Labor Commissioner, pursuant to section 98.4, may then represent an eligible wage claimant in the arbitration proceeding. The one-way fee-shifting provisions of section 98.2, subdivision (c) will be enforced initially by the arbitrator, with such judicial review as may be appropriate.” (Sonic I, supra,
Finally, we held that the FAA does not preempt this approach because “our conclusion that Berman waivers are contrary to public policy and unconscionable does not discriminate against arbitration agreements.” (Sonic I, supra,
in.
Two months after Sonic I was filed, the United States Supreme Court issued its decision in Concepcion, supra,
A.
In Discover Bank v. Superior Court (2005)
We further held that the FAA does not preempt this unconscionability rule. Reciting the applicable law, we said that “ ‘the text of § 2 [of the FAA] provides the touchstone for choosing between state-law principles and the principles of federal common law envisioned by the passage of that statute: An agreement to arbitrate is valid, irrevocable, and enforceable, as a matter of federal law [citation], “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 ... . Thus state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with this requirement of § 2. [Citations.] A court may not, then, in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner different from that in which it otherwise construes nonarbitration agreements under state law. Nor may a court rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to- effect what ... the state legislature cannot.’ ” (Discover Bank, supra, 36 Cal.4th at pp. 164-165, quoting Perry v. Thomas (1987)
We reasoned that our unconscionability rule prohibiting class waivers is not preempted because it applies equally to arbitration and nonarbitration agreements: “[T]he principle that class action waivers are, under certain circumstances, unconscionable as unlawfully exculpatory is a principle of California law that does not specifically apply to arbitration agreements, but to contracts generally. In other words, it applies equally to class action
B.
The high court in Concepcion held that the FAA preempts the unconscionability of class arbitration waivers in consumer contracts, thereby abrogating Discover Bank. Concepcion involved a class action filed in federal court alleging that AT&T engaged in fraud and false advertising by charging sales tax for phones it advertised as free. The value of the claim of the class representatives, Vincent and Liza Concepcion, was $30.22. AT&T moved to compel arbitration. The arbitration agreement provided that if an arbitration award was greater than AT&T’s last written settlement offer, AT&T would pay at minimum $7,500 plus twice the plaintiff’s attorney fees. The district court denied the motion to compel, holding that the class waiver made the arbitration agreement unconscionable under Discover Bank and that the $7,500 penalty did not cure the unconscionability because AT&T could always avoid the penalty by paying the face value of the claim. As the Ninth Circuit said in affirming the district court, “the maximum gain to a customer for the hassle of arbitrating a $30.22 dispute is still just $30.22.” (Laster v. AT&T Mobility LLC (2009)
The Supreme Court reversed. While acknowledging that Discover Bank's unconscionability rule applies equally to arbitration and nonarbitration contracts, the high court concluded that more is required to avoid FAA preemption: “the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration. . . . [A] court may not ‘rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable . . . .’ [Citation.]” (Concepcion, supra,
“An obvious illustration of this point,” Concepcion said, “would be a case finding unconscionable or unenforceable as against public policy consumer arbitration agreements that fail to provide for judicially monitored discovery. The rationalizations for such a holding are neither difficult to imagine nor different in kind from those articulated in Discover Bank. A court might reason that no consumer would knowingly waive his right to full discovery, as this would enable companies to hide their wrongdoing. Or the court might
Such unconscionability rules, “ ‘aimed at destroying arbitration’ or ‘demanding procedures incompatible with arbitration,’ ” would contravene the FAA’s “overarching purpose” of “ensur[ing] the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.” (Concepcion, supra,
First, classwide arbitration “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.” (Concepcion, supra,
Second, “class arbitration requires procedural formality” because of due process concerns. (Concepcion, supra,
“Third, class arbitration greatly increаses risks to defendants” and “is poorly suited to the higher stakes of class litigation” because of the lack of judicial review. (Concepcion, supra,
The high court concluded: “Because it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,’ [citation], California’s Discover Bank rule is preempted by the FAA.” (Concepcion, supra,
C.
Sonic contends that the FAA as construed by Concepcion preempts our holding in Sonic I that a waiver of Berman procedures in an arbitration agreement is, in and of itself, unconscionable and contrary to public policy. Sonic points to our acknowledgment that the usual time between the filing of a complaint with the Labor Commissioner and the conclusion of a Berman hearing is four to six months. (Sonic I, supra,
Sonic I explained that the present case was distinguishable from Preston because “the challenge is to a portion of the arbitration agreement—the Berman waiver—as contrary to public policy and unconscionable, rather than to the contract as a whole. . . . These cases are distinguished not merely because of the nature of the litigants’ challenges, but also because of the fundamental differences between the two statutory regimes at issue. The statute in Preston, the TAA, merely lodges primary jurisdiction in the Labor Commissioner, and does not come with the same type of statutory protections as are found in the Berman hearing and posthearing procedures discussed above. In fact, notwithstanding Ferrer’s argument that those in his position would be deprived of the Labor Commissioner’s expertise (Preston, supra,
We now reexamine Sonic Fs conclusion in light of Concepcion’s precept that “efficient, streamlined procedures” is a fundamental attribute of arbitration with which state law may not interfere. (Concepcion, supra,
Moreno and the Labor Commissioner as amicus curiae contend that the delay contemplated here presents no obstacle to accomplishing the objectives of the FAA. In his briefing, Moreno says: “While the facilitation of streamlined proceedings is an important purpose of the FAA, it is unequivocally clear that requiring arbitration proceedings to go forward at once, without any postponement or delay, regardless of the existence of generally applicable state contract law grounds supporting a discrete challenge to the enforceability of an arbitration agreement, is not a ‘fundamental attribute’ of arbitration. Thus, a defense of fraud, duress or unconscionability as to some specific provision of the arbitration agreement will require the postponement of arbitration while the validity of the defense is adjudicated. ‘If a party challenges the validity under § 2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under § 4.’ (Rent-A-Center West, Inc. v. Jackson,
In sum, we hold that Sonic 7’s rule prohibiting waiver of a Berman hearing is preempted by the FAA.
IV.
Although we conclude that the FAA preempts a state law rule categorically requiring arbitration to be preceded by a Berman hearing, our holding does not fully resolve the unconscionability claim in this case. In his opposition to the petition to compel arbitration, Moreno stated as an affirmative defense that “[i]f the arbitration agreement between the parties is construed as absolutely prohibiting Respondent from exercising [his] statutory right to initially invoke the non-binding or administrative remedy afforded by the Labor Commissioner, then the arbitral scheme crafted by Petitioner fails to provide an arbitral forum in which employees can fully and effectively vindicate their statutory rights to recover unpaid wages, and is thus contrary to public policy, unconscionable and unenforceable.” Because Sonic I concluded categorically that arbitration must be preceded by a Berman hearing and that the petition to compel arbitration was premature, we had no occasion to address whether, without a Berman hearing, Moreno can vindicate his right to recover unpaid wages under this particular arbitral scheme. Moreover, we did not address whether any barrier to vindicating such rights would make the arbitration agreement unconscionable or otherwise unenforceable under California law and, if so, whether such a rule would be preempted by the FAA. We turn now to these questions.
A.
We begin by noting that after Concepcion, unconscionability remains a valid defense to a petition to compel arbitration. Quoting the FAA’s saving clause, Concepcion reaffirmed that the FAA “permits arbitration
What is new is that Concepcion clarifies the limits the FAA places on state unconscionability rules as they pertain to arbitration agreements. It is well established that such rules must not facially discriminate against arbitration and must be enforced evenhandedly. Concepcion goes further to make clear that such rules, even when facially nondiscriminatory, must not disfavor arbitration as applied by imposing procedural requirements that “interfere[] with fundamental attributes of arbitration,” especially its “ ‘lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.’ [Citation.]” (Concepcion, supra, 563 U.S. at pp. __, __ [131 S.Ct. at pp. 1748, 1751].) As the high court explained, if facial neutrality or evenhanded enforcement were the only principles limiting the scope of permissible state law defenses to arbitration, then a state court could—on grounds of unconscionability or public policy—compel the adoption of an arbitration procedure that would be arbitration in name оnly. It could impose judicially monitored discovery, evidentiary rules, jury trials, or other procedures that mimic court proceedings, and thereby undermine the FAA’s purpose of encouraging arbitration as an efficient alternative to litigation. (
Importantly, state law rules that do not “interfere[] with fundamental attributes of arbitration” (Concepcion, supra,
Moreover, there are other ways an arbitration agreement may be unconscionable that have nothing to do with fundamental attributes of arbitration. In Little, for example, we found unconscionable a $50,000 threshold for an arbitration appeal that decidedly favored defendants in employment contract disputes. (Little, supra, 29 Cal.4th at pp. 1071-1074.) In Harper v. Ultimo (2003)
Consider also' the form of unconscionability identified in Gutierrez v. Autowest, Inc. (2003)
As the cases above illustrate, the core concern of the unconscionability doctrine is the “ ‘ “absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” ’ ” (Sonic I, supra, 51 Cal.4th at pp. 684-685; see Walker-Thomas Furniture, supra,
After Concepcion, courts may continue to apply the unconscionability doctrine to arbitration agreements. (See Schnuerle, supra, 376 S.W.2d at pp. 579-580 [Concepcion does not preempt holding that confidentiality provision of arbitration agreement is unconscionable]; In re Checking Account Overdraft Litigation (11th Cir. 2012)
Under Concepcion, the FAA preempts Sonic F s rule that waiver of a Berman hearing necessarily renders an adhesive arbitration agreement unconscionable regardless of what the terms of the agreement provide or how the agreement was formed. State law may not categorically require arbitration to be preceded by an administrative hearing because the hearing interferes with arbitral efficiency by substantially delaying arbitration. Thus, the fact that arbitration supplants an administrative hearing cannot be a basis for finding an arbitration agreement unconscionable.
But the waivability of a Berman hearing in favor of arbitration does not end the unconscionability inquiry. The Berman statutes include various features designed to lower the costs and risks for employees in pursuing wage claims, including procedural informality, assistance of a translator, use of an expert adjudicator who is authorized to help the parties by questioning witnesses and explaining issues and terms, and provisions on fee shifting, mandatory undertaking, and assistance of the Labor Commissioner as counsel to help employees defend and enforce any award on appeal. Waiver of these protections does not necessarily render an arbitration agreement unenforceable, nor does it render an arbitration agreement unconscionable per se. But waiver of these protections in the context of an agreement that does not provide an employee with an accessible and affordable arbitral forum for resolving wage disputes may support a finding of unconscionability. As with any contract, the unconscionability inquiry requires a court to еxamine the totality of the agreement’s substantive terms as well as the circumstances of its formation to determine whether the overall bargain was unreasonably one-sided. In the present case, we remand to the trial court to conduct this fact-specific inquiry.
In evaluating the substantive terms of an arbitration agreement, a court applying the unconscionability doctrine must consider not only what features of dispute resolution the agreement eliminates but also what features it contemplates. Here, the agreement between Sonic and Moreno says that arbitration shall be conducted by a “retired California Superior Court Judge.” The agreement further provides for a right to conduct discovery and take depositions, and it makes applicable, “to the extent applicable in civil actions in California courts, ... all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure section 631.8.” At either party’s request, an arbitration award may be reviewed by a second arbitrator who will, “as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil'
On the other hand, the agreement on its face does not necessarily reveal many of the particulars of the arbitration process that Sonic has adopted. (See, e.g., Truly Nolen of America v. Superior Court (2012)
We emphasize that there is no single formula for designing an arbitration process that provides аn effective and low-cost approach to resolving wage disputes. There are potentially many ways to structure arbitration, without replicating the Berman protections, so that it facilitates accessible, affordable resolution of wage disputes. We see no reason to believe that the specific elements of the Berman statutes are the only way to achieve this goal or that employees will be unable to pursue their claims effectively without initial resort to an administrative hearing as opposed to an adequate arbitral forum. Waiver of the Berman protections will not, by itself,
In Sonic 1, we acknowledged that outside the context of an adhesive form contract, other considerations may inform the unconscionability inquiry. Evidence that a Berman waiver is part of a nonstandard contract freely negotiated by parties of comparable bargaining power, “such as may exist between an employer and a highly compensated executive employee,” weighs against a finding of unconscionability. (Sonic I, supra,
In sum, the unconscionability doctrine does not mandate the adoption of any particular form of dispute resolution mechanism, and courts may not decline to enforce an arbitration agreement simply on the ground that it appears to be a bad bargain or that one party could have done better. The unconscionability doctrine is instead concerned with whether the agreement is unreasonably favorable to one party, considering in context “its commercial setting, purpose, and effect.” (Civ. Code, § 1670.5, subd. (b).) In applying the doctrine to the arbitration agreement here, the trial court may consider as one factor Moreno’s surrender of the Berman protections in their entirety, although that factor alone does not necessarily render the agreement unconscionable. Because it may not have been clear before our decision today that evidence concerning the specific arbitral scheme at issue in this case is pertinent to the unconscionability inquiry, the parties will have the opportunity to present such evidence in order to inform the trial court’s unconscionability determination. “Since unconscionability is a contract defense,” it will be Moreno’s burden on remand to prove “that an arbitration provision is unenforceable on that ground.” (Chin v. Advanced Fresh Concepts Franchise
C.
The unconscionability doctrine we have stated above is not preempted by the FAA. In holding that an employee’s surrender of Berman protections in their totality may be considered as a factor in determining whether an arbitration agreement is unconscionable, our doctrine does not facially discriminate against arbitration. It applies equally to arbitration and nonarbitration agreements that require employees to forgo the Berman protections in resolving wage claims. In addition, our unconscionability doctrine as applied does not pose an obstacle to the achievement of the FAA’s objectives as construed in Concepcion. Because the Berman statutes promote the very objectives of “informality,” “lower costs,” “greater efficiency and speed,” and use of “expert adjudicators” that the high court has deemed “fundamental attributes of arbitration” (Concepcion, supra, 563 U.S. at pp. __-__ [131 S.Ct. at pp. 1748, 1751]; see Cuadra, supra,
The fact that the FAA preempts Sonic 7’s rule requiring arbitration of wage disputes to be preceded by a Berman hearing does not mean that a court applying an unconscionability analysis may not consider the value of benefits provided by the Berman statutes, which go well beyond the hearing itself. The FAA preempts Sonic 7’s rule because it categorically favors a particular form of dispute resolution—the Berman hearing—over arbitration and creates an immovable obstacle to a streamlined arbitral process. By contrast, the unconscionability analysis we describe today is not premised on the superiority of the Berman hearing as a dispute resolution forum. Our rule contemplates that arbitration, no less than an administrative hearing, can be designed to achieve speedy, informal, and affordable resolution of wage claims and that the features of arbitration set forth in an agreement properly inform the unconscionability inquiry. Sonic 7’s rule runs afoul of Concepcion because it interposes the Berman hearing as an unwaivable prerequisite to arbitration
The distinction between state law rules that undermine fundamental attributes of arbitration and state law rules that do not may be further elucidated by considering an example drawn from the facts of Concepcion. As noted, Concepcion held that because class proceedings undermine arbitration’s fundamental attributes of informality and efficiency, the FAA preempts a state unconscionability rule forbidding waiver of class proceedings. But Concepcion did not rule out other ways to enable consumers “to prosecute small-dollar claims that might otherwise slip through the legal system.” (Concepcion, supra,
Suppose that, in light of Concepcion, a state legislature seeking to protect small-dollar claimants were to enact a generally applicable, unwaivable statute similar to the provision just described, requiring a defendant to pay a penalty plus attorney fees if a plaintiff with a low-value claim obtains an award through litigation or arbitration greater than the defendant’s last settlement offer. Nothing in Concepcion suggests that such a statute—which is designed to achieve the same objective as a rule forbidding class waivers but does not interfere with fundamental attributes of arbitration—would be preempted by the FAA. Moreover, the fact that the statute would render invalid an arbitration (or nonarbitration) agreement at odds with the penalty scheme—and thus leave the parties to their usual rights and remedies under state law, including class proceedings—does not mean that the statute has somehow circumvented the FAA’s preemption of state law rules forbidding class waivers.
The unconscionability rule we set forth today stands on exactly the same legal footing. Many of the Berman protections are situated no differently than state laws concerning attorney fee shifting, assistance of counsel, or other rights designed to benefit one or both parties in civil litigation. The
In this case, the types of benefits that would otherwise apply are ones designed to promote, not undermine, the speed, economy, informality, and efficiency of dispute resоlution. Our unconscionability analysis does not pose an obstacle to the FAA’s objectivés any more than if the Legislature were to enact a statute requiring any dispute resolution mechanism, including arbitration, used in lieu of the Berman procedures to have features that mitigate risks and costs for wage claimants, so long as those features do not interfere with fundamental attributes of arbitration. Although Concepcion says state law cannot require a procedure that undermines fundamental attributes of arbitration “even if it is desirable for unrelated reasons” (Concepcion, at p. __ [
To be sure, when a court invalidates an arbitration agreement on unconscionability grounds, it may be said that applying the unconscionability doctrine results in a refusal to enforce arbitration agreements “according to their terms.” (Concepcion, supra, at p. __ [
In sum, we do not hold that any time arbitration is substituted for a judicial or administrative forum, there is a loss of benefits. Nor do we hold that the proponent of arbitration will invariably have to justify the agreement through provision of benefits comparable to those otherwise afforded by statute. Both California and. federal law treat the substitution of arbitration for litigation as the mere replacement of one dispute resolution forum for another, resulting in no inherent disadvantage. (See Armendariz, supra, 24 Cal.4th at pp. 98-99; Mitsubishi Motors, supra, 473 U.S. at pp. 626-628.) But where, as here, a particular class has been legislatively afforded specific protections in order to mitigate the risks and costs of pursuing certain types of claims, and to the extent those protections do not interfere with fundamental attributes of arbitration, an arbitration agreement requiring a party to forgo those protections may properly be understood not only to substitute one dispute resolution forum for another, but also to compel the loss of a benefit. The benefit lost is not dispositive but may be one factor in an unconscionability analysis.
V.
While this case was pending before our court, the United States Supreme Court decided another arbitration case, American Express Co. v. Italian Colors Restaurant (2013)
In Italian Colors, the owner of a small restaurant sought to bring a class action suit alleging that American Express had violated the Sherman Act (15 U.S.C. § 1 et seq.) by “us[ing] its mоnopoly power in the market for charge cards to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards.” (Italian Colors, supra,
The high court explained that the principle that the FAA requires courts to enforce arbitration agreements according to their terms “holds true for claims that allege a violation of a federal statute, unless the FAA’s mandate has been ‘ “overridden by a contrary congressional command.” ’ ” (Italian Colors, supra,
The high court then addressed the plaintiffs’ contention that “a judge-made exception to the FAA . . . serves to harmonize competing federal policies by allowing courts to invalidate agreements that prevent the ‘effective vindication’ of a federal statutory right. Enforcing the waiver of class arbitration bars effective vindication, [the plaintiffs] contend, because they have no economic incentive to pursue their antitrust claims individually in arbitration.” (Italian Colors, supra,
We believe the reasoning of Italian Colors does not alter the unconscionability analysis applicable to the present case. As an initial matter, Italian Colors involved the harmonization of the FAA with other federal law; it was not a preemption case. The high court thus had no occasion to consider the well-established principle that “courts should assume that ‘the historic police powers of the States’ are not superseded ‘unless that was the clear and manifest purpose of Congrеss.’ ” (Arizona v. United States (2012)
In any event, neither the federal antitrust laws nor Federal Rules of Civil Procedure, rule 23 (28 U.S.C.) “established] an entitlement to class proceedings for the vindication of [the] statutory rights” at issue in Italian Colors. (Italian Colors, supra,
Similarly, the high court’s discussion of the “effective vindication” exception in Italian Colors—a doctrine that guides the harmonization of federal statutes—does not affect our analysis in the present case. In stating that “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy” (Italian Colors, supra,
Toward the end of its opinion in Italian Colors, the high court added this paragraph concerning Concepcion: “Truth to tell, our decision in [Concepcion] all but resolves this case. There we invalidated a law conditioning enforcement of arbitration on the availability of class procedure because that law ‘interfere^] with fundamental attributes of arbitration.’
As indicated, the high court understood the result in Italian Colors to be entailed by Concepcion, and one can see why. Concepcion upheld a class arbitration waiver in the face of a contrary unconscionability rule because the rule interfered with fundamental attributes of arbitration. In light of Concepcion’s holding that class procedures interfere with fundamental attributes of arbitration, it is unsurprising that the high court in Italian Colors upheld a class waiver in the face of no contrary legislative command. But the logic that unites Italian Colors and Concepcion does not speak to whether the FAA preempts state law protections for wage claimants that, unlike class procedures, do not interfere with fundamental attributes of arbitration. The high court’s assertion in footnote 5 of Italian Colors that Concepcion “established . . . that the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims” (Italian Colors, supra,
Finally, the high court in Italian Colors ended its opinion by decrying prearbitration litigation over the expected costs of pursuing a particular legal claim or theory: “Such a preliminary litigating hurdle would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure. The FAA does not sanction such a judicially created superstructure.” (Italian Colors, supra,
In any event, we do not anticipate that our unconscionability inquiry will create “a preliminary litigating hurdle” that would delay arbitration under a valid agreement. The wage claim here is simpler than the antitrust claim at issue in Italian Colors, and courts here and elsewhere have routinely decided whether arbitration is affordable in a given case. (See post, at p. 1163.) Moreover, Code of Civil Procedure section 1290.2, which governs petitions to compel arbitration brought in California courts, provides that such petitions “shall be heard in a summary way in the manner and upon the notice provided by law for the making and hearing of motions . . . .” As we explained in Rosenthal v. Great Western Fin. Securities Corp. (1996)
In sum, Italian Colors does not alter the unconscionability analysis we set forth above. Where a state law rule interferes with fundamental attributes of arbitration, the FAA preempts the state law rale even if the rule is designed to facilitate prosecution of certain kinds of claims. Concepcion established this principle, Italian Colors reaffirmed it, and we apply it today to invalidate the categorical rule on waiving a Berman hearing that we adopted in Sonic I. Yet a court, when faced with an unconscionability claim arising from an adhesive employment contract requiring waiver of the Berman protections in their entirety, must still determine whether the overall bargain was unreasonably one-sided. This unconscionability inquiry does not, in purpose or effect, express a preference for nonarbitral as opposed to arbitral forums. To the contrary, it promotes and encourages the use of conventional bilateral arbitration as a means of low-cost, efficient dispute resolution. Our unconscionability doctrine poses no obstacle to enforcement of arbitration agreements so long as the arbitral scheme, however designed,
VI.
Justice Chin dissents from our treatment of Moreno’s unconscionability claim on several grounds. To a significant extent, his dissent relitigates issues that this court has already decided to the contrary. And his only new argument—that the FAA preempts the unconscionability rule we set forth today—is unpersuasive for reasons we have discussed above and further elucidate below.
A.
As an initial matter, Justice Chin says Moreno forfeited his right to litigate the unconscionability issue. The dissent acknowledges that Moreno asserted in the trial court, as a defense to enforcement of the arbitration agreement, that the agreement was unconscionable because it “ ‘fails to provide an arbitral forum in which employees can fully and effectively vindicate their statutory rights to recover unpaid wages.’ ” (Conc. & dis. opn., post, at pp. 1175-1176.) The dissent insists, nevertheless, that Moreno’s unconscionability claim should be deemed forfeited because “he did nothing further in the trial court to pursue either this or any other unconscionability defense.” (Id. at p. 1176.) But a similar argument failed to persuade the court in Sonic I. (See Sonic I, supra,
Justice Chin also characterizes our discussion of unconscionability as “dicta” and an “advisory opinion.” (Conc. & dis. opn., post, at pp. 1178, 1173.) But this is incorrect. “Dicta consists of observations and statements unnecessary to the appellate court’s resolution of the case.” (Garfield Medical Center v. Belshé (1998)
B.
The core of Justice Chin’s dissent is his contention that the arbitration agreement at issue here is not unconscionable. He advances several arguments in support of this claim.
1.
Justice Chin says we have improperly relaxed the unconscionability standard by using the phrase “ ‘unreasonably one-sided’ ” instead of “ ‘ “so one-sided as to shock the conscience.” ’ ” (Conc. & dis. opn., post, at p. 1178.) Justice Corrigan also favors the term “ ‘shock the conscience.’ ” (Conc. opn., post, at p. 1172.) But an examination of the case law does not indicate that “shock the conscience” is a different standard in practice than other formulations or that it is the one true, authoritative standard for substantive unconscionability, exclusive of all others.
In Armendariz, the seminal California case to examine unconscionability in the context of adhesive arbitration agreements, we relied in part on A & M Produce, supra,
Some Courts of Appeal, starting with California Grocers Assn. v. Bank of America (1994)
As Justice Chin notes, we recently said in Pinnacle, an arbitration case, that “[a] contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be ‘so one-sided as to “shock the conscience.” ’ ” (Pinnacle, supra,
2.
Next, Justice Chin argues what neither Sonic nor its amici curiae contend: that the Berman procedures do not actually benefit employees. He claims that because the Labor Commissioner may exercise her discretion in deciding whether to conduct Berman hearings, any value of the Berman procedure to Moreno is “entirely speculative.” (Conc. & dis. opn., post, at pp. 1181, 1182.) Of course, no one can foresee with total certainty whether a particular employee’s application for a Berman hearing will be granted, but that hardly means the Berman procedures have merely speculative value ex ante. If the Berman procedures were, in practice, rarely used and generally unavailable to the employee, the significance of waiving such рrocedures would be diminished. But the parties have not suggested, nor does the record before us indicate, that such is the case.
To the extent Justice Chin suggests that the Berman process is not well designed to facilitate prompt and enforceable resolution of wage claims, we have repeatedly concluded otherwise. In Cuadra, the court unanimously said: “The Berman hearing procedure is designed to provide a speedy, informal, and affordable method of resolving wage claims.” (Cuadra, supra,
To the extent Justice Chin suggests that the Berman protections, despite their design, do not actually achieve their intended purpose, his contention is unsupported by the record before us. Although it may take several months or even a year to resolve a wage claim through the Berman process, the record contains no evidence, and the dissent cites none, that enables us to compare this timeframe with the time required to resolve a similar claim through arbitration of the sort contemplated in the agreement here. Such evidence, if any, may be considered on remand. In addition, Justice Chin notes our statement in Gentry that “. . . Berman hearings may result in no cost savings to the employee” because of the possibility that “a losing employer has a right to a trial de novo in superior court . . . .” (Gentry, supra,
The rest of Justice Chin’s dissent provides similarly scant support for its disparagement of the “asserted benefits of the Berman procedure” as “speculative.” (Conc. & dis. opn., post, at p. 1182.) Although the mandatory assessment of costs and attorney fees against the unsuccessful party in an appeal applies to the employee as well as the employer, the statute’s asymmetric definition of success plainly works in the employee’s favor. (§ 98.2, subd. (c) [“An employee is successful if the court awards an amount greater than zero.”].) And even if the benefit of this provision was not available when Moreno signed his agreement in July 2002—a fact relevant to the unconscionability analysis on remand—there is no question that the benefit has been available since July 2003 (Stats. 2003, ch. 93, § 2, p. 790) and helps to “reduc[e] the costs and delays of prolonged disputes” by deterring meritless appeals (Lolley, supra,
In sum, the Berman procedures taken together are the Legislature’s solution to the real-world problems employees face in recovering wages owed. The Legislature has structured a set of informal procedures and incentives that make it more likely employees will be able to recover wages without incurring substantial attorney fees or the risk of liability for an employer’s attorney fees. The Legislature has also enacted provisions to deter meritless appeals of wage claims through a trial de novo in superior court and to ensure that employees will be able to actually collect a favorable judgment. The dissent does not persuade us to second-guess the efficacy of this legislative solution or to depart from this court’s consistent understanding of the Berman statutes’ benefits. Because we see no basis to conclude that the benefits of the Berman procedures are “entirely speculative” (conc. & dis. opn., post, at pp. 1181, 1182) or that “arbitration is more streamlined than the Berman process . . .” in this and every case (id. at p. 1187), we decline to reject Moreno’s claim of unconscionability on such grounds and instead direct the trial court on remand to consider Moreno’s claim in light of any relevant evidence that the parties may submit.
3.
Justice Chin’s other reasons for challenging our unconscionability analysis are likewise unpersuasive. He contends that our unconscionability rule is “hopelessly vague, uncertain, and subjective” because we do not define the terms “accessible,” “affordable,” “low-cost,” “speedy,” or “effective.” (Conc. & dis. opn., post, at pp. 1179-1180.) But the principles we set forth today are hardly anomalous insofar as they are not bright-line formulations. As this court long ago stated in determining “reasonable water use” in a water rights case: “There would seem to be no more difficulty in ascertaining what is a reasonable use of water than there is in determining probable cause, reasonable doubt, reasonable diligence, preponderance of evidence, a rate that is just and reasonable, public convenience and necessity, and numerous other problems which in their nature are not subject to precise definition but which tribunals exercising judicial functions must determine.” (Gin S. Chow v. City of Santa Barbara (1933)
It has long been recognized that substantive unconscionability is not susceptible to “precise definition” (A & M Produce, supra,
Nor is our approach inconsistent with Little, in which we said that, “[wjithout more,” arbitration conducted with many of the formalities of litigation is not unconscionably one-sided. (Little, supra,
As noted, Sonic’s counsel has represented that the arbitral process at issue here includes features not disclosed in the arbitration agreement, and the trial court may consider such features on remand. (See ante, at
Justice Chin further contends that our unconscionability inquiry is unworkable because “a determination of unconscionability must be based on the circumstances that existed ‘at the time [the contract] was made’ (Civ. Code, § 1670.5, subd. (a)), not on hindsight in light of subsequent events [citations]. Accordingly, ... a trial court, in determining accessibility and affordability, will have to determine, not what Moreno can afford today, but what he could have afforded at the time he signed the arbitration agreement.” (Conc. & dis. opn., post, at p. 1180.) This is not quite correct. Because a predispute arbitration agreement is an agreement to settle future disputes by arbitration, the proper inquiry is what dispute resolution mechanism the parties reasonably expected the employee to be able to afford. Absent unforeseeable (and thus not reasonably expected) circumstances, there is no reason to think that what an employee can afford when a wage dispute arises will materially differ from the parties’ understanding of what the employee could afford at the time of entering the agreement. The dissent’s concern that the affordability inquiry is “difficult, if not impossible” (id. at p. 1180) is, once again, overblown. (See, e.g., Gutierrez, supra, 114 Cal.App.4th at pp. 90-91 [examining affordability of arbitration in the course of determining unconscionability “as of the time the contract is made”].)
Finally, Justice Chin quotes Sonic Ps statement that a trial court confronted with a petition to compel arbitratiоn “ ‘is in no position to determine’ ‘whether and to what extent a particular wage claimant will
C.
In addition to the concerns discussed above, Justice Chin argues that our approach to unconscionability violates the FAA as interpreted in Concepcion and Italian Colors. Again, the dissent’s contention does not withstand scrutiny.
1.
The dissent’s fundamental error is its characterization of Concepcion’s holding in the following terms: “The FAA, as the high court has construed it, precludes state courts from finding an arbitration provision unconscionable based on the need to protect ‘small-dollar claims that might otherwise slip through the legal system,’ even though that goal may be ‘desirable.’ (Concepcion, supra,
If the broad principle that arbitration agreements must be enforced according to their terms, notwithstanding the desirability of state laws protecting small-dollar claims, were the decisive principle in Concepcion, then why would the high court have bothered to spill so much ink explaining why class proceedings are incompatible with “fundamental attributes of arbitration”? (Concepcion, supra, 563 U.S. at pp. __-__ [131 S.Ct. at pp. 1748-1753].) That entire discussion would have been unnecessary under Justice Chin’s account of Concepcion. The holding of Concepcion is that “[Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” (Id. at p. __ [
Thus, Concepcion expressly states, and Italian Colors expressly confirms, that the dispositive rationale for Concepcion’s preemption holding is that class proceedings interfere with “fundamental attributes of arbitration.” (Concepcion, supra,
Justice Chin does claim that “arbitration is more streamlined than the Berman process . . .” and that our approach to unconscionability “is likely to produce procedures that are less efficient, more costly, more formal, and more time consuming than arbitration.” (Conc. & dis. opn., post, at p. 1187.) But,
Instead of coming to grips with Concepcion’s core rationale, Justice Chin’s dissent assigns decisive weight to the general proposition that the FAA’s principal purpose is to ensure enforcement of arbitration agreements “ ‘according to their terms.’ ” (Conc. & dis. opn., post, at pp. 1186, 1189, 1191.) To be sure, this proposition is well established in the high court’s FAA precedents. (See, e.g., Italian Colors, supra, 570 U.S. at p. __, fn. 5 [
Under the dissent’s sweeping view of FAA preemption, no unconscionability rule may take into account the surrender of statutory protections for certain claimants, whether or not those protections interfere with fundamental attributes of arbitration. Waiver of fee-shifting provisions favoring particular litigants (see Serpa, supra, 215 Cal.App.4th at pp. 709-710 [discussing fee shifting under FEHA]; Ajamian, supra,
In Concepcion and in Italian Colors, the high court rejected a challenge to an arbitration agreement where the only asserted defect was the absence of class proceedings and where the only remedy—to allow class proceedings—was deemed incompatible with fundamental attributes of arbitration. Unlike Discover Bank’s rule entitling consumers to class proceedings, and unlike Sonic /’ s rule entitling wage claimants to pursue a Berman hearing, the unconscionability rule we articulate today requires no such incompatible proceedings. Our rule fully recognizes that parties may opt out of the Berman process with any agreement that provides for accessible, affordable arbitration of wage disputes. Contrary to the dissent’s characterization, our unconscionability rule does not “impose all sorts of arbitration procedures” (conc. & dis. opn., post, at p. 1188); instead, it targets practical impediments to the use of arbitration to resolve wage disputes while imposing no specific procedural requirements. Our rule thus serves to facilitate
2.
Justice Chin also asserts, using various formulations, that our approach to unconscionability discriminates against arbitration. (Conc. & dis. opn., post, at p. 1190 [“ ‘constructs] [an arbitration] agreement in a manner different from that in which [a court] otherwise construes nonarbitration agreements under state law’ ”]; ibid, [“crafts different unconscionability rules for arbitration agreements”]; id. at pp. 1191-1192 [“ ‘disfavors arbitration’ ” and “ ‘derivets] [its] meaning from the fact that an agreement to arbitrate is at issue’ ”].) The main problem, the dissent says, is that our unconscionability rule is “not a ground that exists at law or in equity for the revocation of any contract, but is . . . merely a ground that exists for the revocation of arbitration provisions in contracts subject to the Berman statutes or to other statutes that ‘legislatively’ afford to ‘a particular class . . . specific protections in order to mitigate the risks and costs of pursuing certain types of claims.’ ” (Id. at p. 1190.)
Again, the reasoning of Concepcion is instructive. In calling into question unconscionability rules that “would have a disproportionate impact on arbitration agreements” (Concepcion, supra,
Neither Perry v. Thomas (1987)
Under Perry and Southland, the FAA clearly preempts a state unconscionability rule that establishes an unwaivable right to litigate particular claims by categorically deeming agreements to arbitrate such claims unenforceable. That is what the high court meant by its reference to “[a] state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue.” (Perry, supra,
Justice Chin’s dissent concludes with the ominous implication that the unconscionability rule we adopt today demonstrates “ ‘judicial hostility’ ” toward arbitration agreements. (Conc. & dis. opn., post, at p. 1192.) But we are well past the day when prevailing judicial sensibilities regarded reasonable state regulation of the employment relationship as an expression of hostility to contractual freedom. Our unconscionability rule does not treat arbitration agreements differently from nonarbitration agreements, does not remotely foreclose the enforceability of agreements to arbitrate wage disputes, and does not require such agreements to adopt any devices or procedures inimical to arbitration’s fundamental attributes. “It should be stressed,” as Justice Corrigan observes, “that our decision today does not require trial courts to adopt a new procedure or analytical approach when an unconscionability defense concerns an arbitration provision in an employment contract.” (Conc. opn., post, at p. 1173.) In short, our rule does not discriminate against arbitration. The FAA requires courts to place arbitration agreements on equal footing with other contracts. At the same time, the FAA makes clear that the legal footing on which arbitration and nonarbitration agreements may be placed encompasses any “grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C. § 2), including “ ‘generally applicable contract defenses, such as fraud, duress, or unconscionability’ ” (Concepcion, supra,
CONCLUSION
The trial court denied the petition to compel arbitration as premature, ruling that arbitration may not be ordered until completion of a Berman hearing. (Sonic I, supra,
Cantil-Sakauye, C. J., Kennard, J., Werdegar, J., and Corrigan, J., concurred.
Concurrence Opinion
I concur in the result and much of the analysis in the majority opinion, but I disagree with its failure to articulate a clear standard for assessing the unconscionability of arbitration terms in employment agreements.
The majority refers to several formulations but does not settle on a test for unconscionability. It describes an analysis in which the trial court weighs the Berman advantages waived against the benefits of arbitration to decide if the agreement is “unreasonably one-sided.” (Maj. opn., ante, at pp. 1146, 1157.) Justice Chin characterizes this approach аs interest weighing and criticizes it as insufficiently deferential to arbitration. Whereas the majority would remand for the trial court to determine unconscionability, Justice Chin would have us decide here that the agreement is not unconscionable.
I agree with Justice Chin that the proper test for determining unconscionability here is whether the terms are “ ‘so one-sided as to “shock the conscience.” ’ ” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012)
However, unconscionability is a fact-specific defense. Appellate courts are at a disadvantage when the question is not fleshed out in the trial court. Thus,
It should be stressed that our decision today does not require trial courts to adopt a new procedure or analytical approach when an unconscionability defense concerns an arbitration provision in an employment contract. Considerations outlined in the majority opinion may be relevant to such an analysis, but lower courts retain discretion to weigh these considerations as appropriate in each particular case. Today’s decision holds only that unconscionability remains a defense to enforcement of an arbitration clause in an employment contract and that, while the relinquishment of Berman procedures is one factor to be weighed in considering unconscionability, this factor alone is not sufficient to support an unconscionability finding.
With this understanding, I join the majority’s decision.
Concurrence Opinion
In Sonic-Calabasas A, Inc. v. Moreno (2011)
I. Factual Background.
Frank Moreno was an employee of Sonic-Calabasas A, Inc. (Sonic). In December 2006, after voluntarily ending his employment, he filed a wage claim with the Labor Commissioner pursuant to Labor Code section 98
In February 2007, Sonic filed in the superior court a petition to compel arbitration of Moreno’s claim and to dismiss his pending administrative action. It relied on the broad and comprehensive arbitration provision in an agreement Moreno signed on July 14, 2002, which provides in relevant part: “I . . . acknowledge that [Sonic] utilizes a system of alternative dispute resolution that involves binding arbitration to resolve all disputes that may arise out of the employment context. Because of the mutual benefits (such as reduced expense and increased efficiency) which private binding arbitration can provide both [Sonic] and myself, both [Sonic] and I agree that any claim, dispute, and/or controversy (including, but not limited to, any claims of discrimination and harassment . . .) that either I or [Sonic] . . . may have against the other which would otherwise require or allow resort to any court or other governmental dispute resolution forum arising from, related to, or having any relationship or connection whatsoever with my seeking employment With, employment by, or other association with [Sonic], whether based on tort, contract, statutory, or equitable law, or otherwise, (with the sole exception of claims arising under the National Labor Relations Act . . . , claims for medical and disability benefits under the California Workers Compensatipn Act, and Employment Development Department claims) shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec. 1280 et seq., including section 1283.05 and all of the Act’s other mandatory and permissive rights to discovery). However, nothing herein shall prevent me from filing and pursuing- administrative proceedings only before the California Department of Fair Employment and Housing, or the U.S. Equal Opportunity Commission.”
Moreno and the Labor Commissioner, who intervened on Moreno’s behalf, opposed Sonic’s motion to compel. They argued that, insofar as the arbitration agreement deprives Moreno of the benefits of the Berman procedure, it is unenforceable as against public policy.
The superior court denied the petition to compel arbitration, agreeing that the arbitration provision violates public policy insofar as it waives Moreno’s right to pursue a Berman hearing. The Court of Appeal reversed, finding “no evidence” in the record “that Moreno or any other wage claimant lacks the knowledge, skills, abilities, or resources to vindicate his or her statutory rights in an arbitral forum.”
II. The FAA Preempts Sonic I’j Public Policy Rationale.
In my dissent in Sonic I, I explained that the FAA, under the United States Supreme Court’s binding interpretation of that statute, preempts the Sonic I majority’s public policy rationale. (Sonic I, supra, 51 Cal.4th at pp. 706-712 (dis. opn. of Chin, J.).) After we decided Sonic I, the high court held in Concepcion that the FAA preempts the California rule, announced by another four-to-three majоrity of this court in Discover Bank v. Superior Court (2005)
III. Moreno Has Forfeited His Unconscionability Claim.
As the majority acknowledges (maj. opn., ante, at pp. 1149-1150), because unconscionability is a contract defense, the party resisting enforcement of an arbitration provision has the burden of proving unconscionability. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012)
The record here supports application of this forfeiture rule to Moreno’s unconscionability claim. At no point in the trial court did Moreno claim that the arbitration provision here is “unreasonably one-sided in favor of the employer.” (Maj. opn., ante, at p. 1125.) He did allege in his response to Sonic’s petition to compel that the arbitration provision is unconscionable because it “fails to provide an arbitral forum in which employees can fully
IV. Under Existing California Law, the Arbitration Provision Is Not Unconscionable.
Were it either necessary or appropriate to reach the unconscionability claim Moreno is now asserting, under existing California law, I would reject it.
Civil Code section 1670.5, subdivision (a), authorizes a court, upon finding “as a matter of law” that a “contract or any clause of the contract” was “unconscionable at the time it was made,” to “refuse to enforce the contract,” to “enforce the remainder of the contract without the unconscionable clause,” or to “so limit the application of any unconscionable clause as to avoid any unconscionable result.” The official Assembly comment accompanying this section explains: “The basic test [of unconscionability] is whether, in the light of the general background and the needs of the particular case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. . . . The principle is one of prevention of oppression and unfair surprise [citation] and not of disturbance of allocation of risks because of superior bargaining power.” (Rep. on Assem. Bill No. 510 (1979-1980 Reg. Sess.) 5 Assem. J. (1979-1980 Reg. Sess.) p. 9231, reprinted as Legis. Com. com., 9 West’s Ann. Civ. Code (2011 ed.) foil. § 1670.5, p. 74 (Official Comment).) Consistent with this comment, we recently reaffirmed in the context of determining the validity of an arbitration provision that “[a] contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be ‘so one-sided as to “shock the conscience.” ’ [Citation.]” (Pinnacle, supra,
Under these principles, the arbitration provision at issue here is not unconscionable. As the majority notes, in evaluating a claim that a contract is
Supporting my conclusion is this court’s decision in Little v. Auto Steigler, Inc. (2003)
V. The Majority’s Test for Unconscionability Is Vague, Unworkable, and Inconsistent with Existing California Law.
The majority believes that Moreno, who made no attempt in the trial court to show unconscionability, should nevertheless have a second chance. After concluding that, under the FAA, “unconscionability remains a valid defense to a petition to compel arbitration” (maj. opn., ante, at p. 1142), the majority reasons that, because Moreno did not “develop[]” his unconscionability claim below (maj. opn., ante, at p. 1125), remand is appropriate so the trial court can consider that claim “in the first instance” (maj. opn., ante, at p. 1172). Because this conclusion “is decisive of the appeal” (Stockton Theatres, Inc. v.
Moreover, there are numerous problems with the majority’s dicta, starting with its articulation of the general unconscionability standard. According to the majority, the trial court may declare the arbitration provision unconscionable upon finding that it is “unreasonably one-sided in favor of the employer.” (Maj. opn., ante, at p. 1125.) If, by this, the majority means “ ‘so one-sided as to “shock the conscience” ’ ” (Pinnacle, supra,
However, if, by “unreasonably one-sided,” the majority means something less, then I disagree. As our Courts of Appeal have consistently recognized, the phrase “shock the conscience” is not, as the majority suggests (maj. opn., ante, at pp. 1145, 1159-1160), “synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]” (Morris v. Redwood Empire Bancorp (2005)
Unfortunately, it appears the majority does, in fact, mean something less. Early in its opinion, the majority indicates that whether the arbitration provision is unconscionable turns on “[t]he fundamental fairness of the bargain,” which “depend[s] on what benefits the employee received under the
In the end, the majority, though purporting to provide guidance to the trial court, refuses to say precisely what standard the court should apply on remand in determining unconscionability. Instead, after asserting that our case law “does not indicate” whether the shock the conscience standard is “different” from the many other standards the majority puts forth, or “is the one true, authoritative standard for substantive unconscionability, exclusive of all others” (maj. opn., ante, at p. 1159), the majority declines to decide these questions and leaves it to the trial court to determine which of the majority’s “nonexclusive formulations” to apply (maj. opn., ante, at p. 1160). In my view, Pinnacle settles the question; the arbitration provision at issue is unconscionable only if it is so one-sided as to shock the conscience. (Pinnacle, supra,
The majority’s dicta regarding how the general unconscionability standard should be applied in this specific case is also problematic. The majority offers a number of different formulations, indicating that the arbitration agreement’s validity turns, variously, on whether the arbitration procedure (1) will enable Moreno to “vindicate his right to recover unpaid wages” (maj. opn., ante, at p. 1142) or “obtain prompt, affordable, and enforceable resolution of [his] wage claim” (maj. opn., ante, at p. 1147); (2) will “impose[] costs and risks . . . that make the resolution of the wage dispute inaccessible and unaffordable, and thereby ‘effectively blocks every forum for . . . redress’ ” (id. at p. 1148); and (3) will provide “an еffective and low-cost approach to resolving wage disputes” (id. at p. 1147), a “speedy, informal, and affordable resolution” of Moreno’s wage claim (maj. opn., ante, at p. 1149), or an “accessible” and “affordable” forum for resolving his wage dispute (maj. opn., ante, at pp. 1147-1148, 1149). These terms are hopelessly vague, uncertain, and subjective. The majority offers no clue as to what it means to
Even were these terms capable of precise definition, the inquiry necessary to apply them would be difficult, if not impossible. Under our law, a determination of unconscionability must be based on the circumstances that existed “at the time [the contract] was made” (Civ. Code, § 1670.5, subd. (a)), not on hindsight in light of subsequent events (Setzer v. Robinson (1962)
Equally, if not more, problematic is the majority’s view that, in determining unconscionability, a trial court may consider “the value of’ the benefits under the Berman procedure that Moreno has surrendered. (Maj. opn., ante,
Also speculative is the majority’s assertion that the Berman procedure is speedy, informal, and affordable. Regarding speed, we have previously observed that, because of “the time consumed by the various procedural steps” in Berman proceedings, there is “typically” a four-to six-month “delay” between the filing date and the Berman hearing. (Cuadra v. Millan (1998)
Regarding formality, a Berman hearing is not nearly as informal as the majority suggests. In 2002, when Moreno signed the arbitration agreement, the Labor Commissioner’s published policies and procedures stressed (and
Other asserted benefits of the Berman procedure are likewise speculative. The majority notes that, before the holding of a Berman hearing, the Labor Commissioner’s staff “ ‘may attempt to settle claims either informally or through a conference between the parties.’ ” (Maj. opn., ante, at p. 1128, italics added.) However, these efforts are entirely discretionary; in any given case, the Labor Commissioner may choose not to make any informal settlement attempts. The majority also emphasizes the requirement that an employer wishing to file an appeal must post an undertaking with the court in the amount of the award. (Maj. opn., ante, at p. 1129.) However, an employee who has agreed to arbitrate a controversy may obtain provisional remedies— such as an attachment or a preliminary injunction requiring payment of wages during the arbitration—in connection with the controversy.
My conclusion that, at the petition to compel stage, the value of the Berman procedure to a particular employee in a given case is speculative does not, as the majority asserts, “disparage^” that procedure. (Maj. opn., ante, at p. 1161.) It is, after all, the majority that is requiring the trial court to determine the potential “value” of the Berman procedure to Moreno. (Maj. opn., ante, at p. 1149.) Insofar as the majority presumes that the Berman procedure would be beneficial to Moreno and superior to Sonic’s arbitration procedure, and the majority places the burden on Sonic to introduce evidence showing otherwise (see maj. opn., ante, at p. 1147), the majority reverses our established approach to unconscionability. As earlier noted, Moreno, as the party asserting the defense, has the burden to prove unconscionability. (Pinnacle, supra,
Indeed, my conclusion regarding the speculative benefit of a Berman proceeding and my consequent rejection of the majority’s case-by-case approach are fully consistent with our existing precedent, including the Sonic I majority’s opinion in this very case. In Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
For all of the preceding reasons, the approach to unconscionability the majority’s dicta outlines is hopelessly vague and unworkable, and is inconsistent with existing California law.
VI. The Majority’s Approach Is Inconsistent with, and Preempted by, the FAA.
In Sonic I, it was clear to me that the FAA, as authoritatively construed by the United States Supreme Court, preempts the Sonic I majority’s public policy rule. (Sonic I, supra, 51 Cal.4th at pp. 706-712 (dis. opn. of Chin, J.).) It is equally, if not more, clear that, under the high court’s decisions, the FAA preempts the unconscionability analysis the majority’s dicta now describes.
Not surprisingly, this conclusion most clearly appears from Concepcion, the very decision the high court directed us to consider when it vacated the
More recently, in American Express Co. v. Italian Colors Restaurant (2013)
Under these binding precedents, the FAA preempts the approach to unconscionability the majority describes. To the extent an arbitration agreement “forbid[s] the assertion of certain statutory rights,” and “perhaps” to the extent it imposes “filing and administrative fees . . . that are so high as to ’ make access to the forum impracticable,” the FAA may not require enforcement of the agreement according to its term. (Italian Colors, supra, 570 U.S. at pp. __-__ [133 S.Ct. at pp. 2310-2311].) Short of that, under the FAA, an arbitration provision may not be invalidated as unconscionable because of a court’s subjective determination that a given arbitration procedure is not “affordable” and “accessible” (maj. opn., ante, at pp. 1148, 1149), or that its costs and risks “ ‘effectively’ ” render a wage claim not worth pursuing (maj. opn., ante, at p. 1142) and thus erect a “barrier to vindicating [wage] rights” (maj. opn., ante, at p. 1143). The FAA, as the high court has construed it, precludes state courts from finding an arbitration provision unconscionable based on the need to protect “small-dollar claims that might otherwise slip through the legal system,” even though that goal may be “desirable.” (Concepcion, supra,
The majority’s attempts to reconcile its dicta with these binding precedents are unpersuasivé. The majority first asserts that, “[bjecause the Berman statutes promote the very objectives of ‘informality,’ ‘lower costs,’ ‘greater efficiency and speed,’ and use of ‘expert adjudicators,’ ” its approach “does not pose an obstacle to the achievement of the FAA’s objectives as construed in Concepcion.” (Maj. opn., ante, at p. 1149.) However, it is obvious that using the unconscionability doctrine to invalidate arbitration agreements and mandate either Berman procedures or Berman-like procedures frustrates what Concepcion, like many high court decisions before it, identified as “[t]he ‘principal purpose’ of the FAA”: “to ‘ensur[e] that private arbitration agreements are enforced according to their terms.’ [Citations.]” (Concepcion, supra,
But here, because arbitration is more streamlined than the Berman process, the majority’s approach also frustrates other FAA objectives the high court emphasized in Concepcion. (Concepcion, supra,
Moreover, Italian Colors establishes that the very process the majority prescribes for determining the accessibility and affordability of the arbitration procedure in a given case poses such an obstacle. There, the high court rejected an approach that would “ ‘require courts to proceed case by case to tally the costs and burdens to particular plaintiffs in light of their means’ ” and “ ‘the size of their claims.’ ” (Italian Colors, supra, 570 U.S. at pp. __-__ [133 S.Ct. at pp. 2311-2312].) “Such a preliminary litigating hurdle,” the court explained, “would undoubtedly destroy the prospect of
Nothing supports the majority’s unsupported speculation that its case-by-case inquiry will be different, i.e., that a minitrial on the comparative costs and benefits of arbitration and the Berman procedure for a particular employee will not impose a preliminary litigating hurdle. (Maj. opn., ante, at p. 1158.) Under the majority’s approach, the parties will be submitting evidence on any number of issues, including the following: what arbitration procedure the employee can currently afford and whether that “materially differ[s]” from what he should or could have afforded when the parties signed the arbitration agreement (maj. opn., ante, at p. 1164); what were (and perhaps are) the rules that govern the arbitration; what will the unspecified arbitration procedures be; are Berman procedures “in practice, rarely used and generally unavailable to the employee” (maj. opn., ante, at p. 1160); how long will it take to resolve the employee’s wage claim through the Berman procedure, including a possible trial de novo in superior court, and how long will it take to resolve the wage claim through the arbitration procedure (maj. opn., ante, at p. 1161); how much will it cost to resolve the employee’s wage claim through the Berman procedure, including a possible trial de novo, and how much will it cost to resolve the wage claim through the arbitration procedure (maj. opn., ante, at p. 1161); how often do parties request a trial de novo (maj opn., ante, at p. 1167)? Given the parties’ need to litigate all of these matters in the trial court, and the availability of appellate review of the trial court’s decision (Code Civ. Proc., § 1294, subd. (a); Parada, supra,
In any event, I disagree with the majority that, so long as states and their courts do not interfere with fundamental attributes of arbitration, Concepcion allows them to invalidate arbitration agreements as unconscionable based on a policy judgment that the arbitration procedure is not adequately affordable and accessible. (Maj. opn., ante, at pp. 1144-1158.) Under the majority’s narrow reading of Concepcion, the FAA’s savings clause permits states, for policy reasons, to impose all sorts of arbitration procedures that are not within the terms of the parties’ arbitration agreement, so long as those procedures do not interfere with fundamental attributes of arbitration. This view is contrary to the high court’s statement in Concepcion that the FAA
Indeed, the majority’s assertion that its weighing approach to unconscionability applies, not generally, but only where “a particular class has been legislatively afforded specific protections in order to mitigate the risks and costs of pursuing certain types of claims . . .” (maj. opn., ante, at p. 1152) further demonstrates that the majority’s approach is inconsistent with, and therefore preempted by, the FAA. The majority premises its approach on the FAA’s savings clause, which provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2; see maj. opn., ante, at p. 1143.) In Southland, Justice Stevens invoked this clause to justify the prohibition against arbitration we had read into California’s Franchise Investment Law (Corp. Code § 31000 et seq.). (Southland, supra, 465 U.S. at pp. 18-22 (conc. & dis. opn. of Stevens, J.).) He reasoned that, because a contract void as contrary to public policy is revocable at law or in equity, the FAA does not preempt a state law that “provid[es] special protection” to franchisees by declaring agreements to arbitrate claims under the Franchise Investment Law void as a matter of public policy. (465 U.S. at pp. 21-22 (conc. & dis. opn. of Stevens, J.).) The majority in Southland rejected this view, finding that the “defense to arbitration” we had read into the Franchise Investment Law was “not a ground that exists at law or in equity ‘for the revocation of any contract’ but merely a ground that exists for the revocation of arbitration provisions in contracts subject to the California Franchise Investment Law.” (
The majority’s approach is inconsistent with Southland. Like the defense to arbitration wе read into the Franchise Investment Law, the defense to arbitration the majority now reads into the Berman statutes is not a ground that exists at law or in equity for the revocation of any contract, but is, according to the majority’s own assertion, merely a ground that exists for the revocation of arbitration provisions in contracts subject to the Berman statutes or to other statutes that “legislatively” afford to “a particular class . .. specific protections in order to mitigate the risks and costs of pursuing certain types of claims.” (Maj. opn., ante, at p. 1152.) Moreover, it “conflicts] with” the FAA by enabling our Legislature, “simply by passing statutes such as” the Berman statutes, “to override the declared [federal] policy requiring enforcement of arbitration agreements” and to “wholly eviscerate congressional intent to place arbitration agreements ‘upon the same footing as other contracts.’ ” (Southland, supra, 465 U.S. at pp. 16-17, fn. 11.) Under Southland, it is, therefore, preempted.
Given this analysis, I disagree with the majority’s broad assertion that the FAA does not preempt unconscionability rules that apply “uniquely in the context of arbitration.” (Maj. opn., ante, at p. 1143.) As the high court has held, in cases where the FAA applies, a state court may not, “in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner different from that in which it otherwise construes nonarbitration agreements under state law.” (Perry v. Thomas (1987)
Finally, for two reasons, I also disagree with the majority’s view that the high court’s FAA decisions allow us to “consider the value of benefits provided by the Berman statutes” in determining unconscionability. (Maj. opn., ante, at p. 1149.) First, insofar as this approach will require a complex and speculative inquiry into the purported value of the Berman statutes to a particular employee at the time the contract was signed, it is, as earlier explained, inconsistent with Italian Colors, supra, 570 U.S. at pages __-__ [133 S.Ct. at pp. 2311-2312], Second, even were it possible for a trial court to assign any meaningful value to these speculative benefits, considering that value would be fundamentally inconsistent with Concepcion and Italian Colors. In the former, the high court held that state courts may not base a finding of unconscionability on the value of class arbitration to litigants with “small-dollar claims.” (Concepcion, supra,
For all of the above reasons, the majority’s approach is inconsistent with the FAA. Although the majority purports to be faithfully applying “the FAA’s saving clause” (maj. opn., ante, at p. 1142), which permits arbitration agreements “to be invalidated by ‘generally applicable contract defenses, such as . . . unconscionability’ ” )(Concepcion, supra,
VII. Conclusion.
In Concepcion, the high court, in invalidating another of this court’s unconscionability rules for refusing to enforce arbitration provisions, first noted that “judicial hostility” towards arbitration has “manifested itself in ‘a great variety’ of ‘devices and formulas.’ ” (Concepcion, supra,
Baxter, J., concurred.
Notes
All further unlabeled statutory references are to the Labor Code.
The majority’s view that it is enough to determine “what an employee can afford when a wage dispute arises” (maj. opn., ante, at p. 1164), “is contrary to statute.” (Parada, supra,
Under the Berman statutes, the Labor Commissioner has at least 90 days after deciding to proceed with a hearing actually to hold it, and may “postpone or grant additional time before setting a hearing [upon] findpng] that it would lead to an equitable and just resolution of the dispute.” (§ 98, subd. (a).) The Labor Commissioner’s “understanding” of this provision is that a simple request by one of the parties constitutes an appropriate ground for delay. (Cuadra v. Millan, supra,
Gentry was not, as the majority states, discussing whether “thousands of individual Berman hearings would . . . result in cost savings as compared to a single class proceeding.” (Maj. opn., ante, at p. 1161.) It was explaining that a losing employer’s right to a trial de novo under the Berman procedure can negate any cost savings of the procedure “to the employee,” i.e., to an individual employee. (Gentry, supra,
If, as the majority asserts, the purpose of the Berman undertaking requirement is to counteract an employer’s efforts “to avoid enforcement of the judgment” (maj. opn., ante, at p. 1129), then it is unclear why the majority finds it significant that obtaining provisional relief requires a showing that “ ‘the award to which the applicant may be entitled may be rendered ineffectual without provisional relief.’ ” (Maj. opn., ante, at p. 1162.)
In July 2002, when Moreno signed the agreement, the law was unclear as to whether an appealing employee was successful if the award on appeal was not greater than the administrative award, and we had granted review to resolve a split of published authority on the issue. (Smith v. Rae-Venter Law Group, rev. granted Aug. 29, 2001, S098760.) In December 2002, we held that an appealing employee is “unsuccessful” within the meaning of the fee statute if he or she does not obtain a “more favorable" judgment on appeal. (Smith v. Rae-Venter Law Group (2002)
Whether, under current high court precedent, the FAA preempts any of the other unique unconscionability rules the majority’s dicta discusses (maj. opn., ante, at pp. 1143-1145) is not before us in this case.