Opinion
Under Labor Code section 98 et seq., an employee with a claim for unpaid wages has a right to seek an informal hearing in front of the
In this case, we must decide whether a provision in an arbitration agreement that the employee enters as a condition of employment requiring waiver of the option of a Berman hearing is contrary to public policy and unconscionable. We conclude that it is, and therefore reverse the Court of Appeal’s contrary judgment. We nonetheless conclude that arbitration agreements may be enforced after a Berman hearing has taken place, i.e., the appeal from such a hearing may be made, pursuant to a valid arbitration agreement, in front of an arbitrator rather than in court.
Furthermore, we must decide whether a state law rule that a Berman waiver in an arbitration agreement is unconscionable and contrary to public policy is preempted by the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). In arguing this issue, the parties particularly focus on a recent United States Supreme Court case,
Preston v. Ferrer
(2008)
I. Facts and Procedural History
The facts are not in dispute. 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. Critically for our case, the agreement contained a paragraph governing dispute resolution. The agreement required both parties to submit their employment disputes to “binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration
At some point, Moreno left his position with Sonic. In December 2006, Moreno filed an administrative wage claim with the Labor Commissioner for unpaid vacation pay pursuant to Labor Code section 98 et seq. 1 Moreno alleged that 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 this 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 dismiss the pending administrative action. (Code Civ. Proc., § 1281.2.) Sonic argued Moreno waived his right to a Berman hearing in the arbitration agreement.
The Labor Commissioner intervened below 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. The Labor Commissioner argued that 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 to the superior court that is provided in section 98.2, subdivision (a). The Labor Commissioner contended that a contrary interpretation of the arbitration agreement to waive a Berman hearing would violate public policy, relying on our decision regarding mandatory employment arbitration agreements in
Armendariz v. Foundation Health Psychcare Services, Inc.
(2000)
The superior court denied the petition to compel arbitration as premature. Citing
Armendariz,
the superior court stated that, as a matter of “basic public policy . . . until there has been the preliminary non-binding hearing and
Sonic appealed from the order of denial. (Code Civ. Proc., § 1294, subd. (a).) The Labor Conimissioner did not participate in the appeal, nor in proceedings before this court. During the briefing period, the United States Supreme Court decided
Preston,
which held that the Labor Commissioner’s original and exclusive jurisdiction under the Talent Agencies Act (Lab. Code, § 1700 et seq.) was preempted when the parties entered into an arbitration agreement governed by the FAA.
(Preston, supra,
The Court of Appeal concluded at the threshold that Preston was not dispositive of the appeal, reasoning that Preston applied to cases in which a party was challenging the validity of a contract as a whole and seeking to have that challenge adjudicated by an administrative agency; it did not apply to cases in which the party was challenging the arbitration clause itself as unconscionable. The Court of Appeal further concluded that the arbitration agreement, correctly interpreted, constituted a waiver of a Berman hearing. By its terms, the agreement precluded Moreno from pursuing any judicial “or other government dispute resolution forum,” subject to certain enumerated exceptions. “Given that neither the Division of Labor Standards Enforcement nor the Labor Commissioner was listed among the stated exceptions, we conclude, as a matter of law, that Moreno was barred from pursuing an administrative wage claim under section 98 et seq.”
The Court of Appeal then concluded, for reasons explained below, that a Berman waiver was not contrary to public policy. Moreno petitioned for review, contending the Court of Appeal decided this question incorrectly. Sonic, in its answer to the petition, contended the Court of Appeal was correct, and renewed its argument that a holding invalidating a Berman waiver would be preempted by the FAA, as construed in Preston. We granted review to decide these questions.
II. Discussion
A. The Berman Hearing and Posthearing Procedures
As we have explained: “If an employer fails to pay wages in the amount, time or manner required by contract or by statute, the employee has two principal options. The employee may seek
judicial
relief by filing an ordinary civil action against the employer for breach of contract and/or for the wages prescribed by statute. (§§ 218, 1194.) Or the employee may seek
administrative
relief by filing a wage claim with the commissioner pursuant
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 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 a 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, and there is no discovery process; 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.)” (Cuadra, supra, 17 Cal.4th at pp. 858-859, fn. omitted.) 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, subd. (b) [“. . . Labor Commissioner shall provide that an interpreter be present at all hearings and interviews where appropriate.”].)
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 requitement 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. (See
Dawson
v.
Westerly Investigations, Inc.
(1988)
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 tire 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.
(Lolley v. Campbell
(2002)
In sum, when employees have a wage dispute with an employer, they have a right to seek resolution of that dispute through the Labor Commissioner, either through the commissioner’s settlement efforts, through an informal Berman hearing, or through the commissioner’s direct prosecution of the action. When employees prevail at a Berman hearing, they will enjoy the following benefits: (1) the award will be enforceable if not appealed; (2) the Labor Commissioner is statutorily mandated to expend best efforts in enforcing the award, which is also established as a court priority; (3) if the employer appeals, it is required to post a bond equal to the amount of the award so as to protect against frivolous appeals and evading the judgment; (4) a one-way attorney fee provision will ensure that fees will be imposed on employers who unsuccessfully appeal but not on employees who unsuccessfully defend their Berman hearing award, or on employees who appeal and are awarded an amount greater than zero in the superior court; and (5) the Labor Commissioner is statutorily mandated to represent in an employer’s appeal claimants unable to afford an attorney if the claimant does not contest the Labor Commissioner’s award.
B. Berman Hearings and Arbitration Are Compatible
We note that the Labor Commissioner, who intervened in this case at the trial court level, did not contend that arbitration and Berman hearings are incompatible, or that the present arbitration agreement could not be enforced, but only that “the arbitration agreement should be construed as providing that respondent is entitled to initially pursue his remedy before the Commissioner and is only required to proceed to arbitration if and when a de novo appeal is
We construe the relevant statutes to permit binding arbitration after a Berman hearing. We recently considered an analogous statutory scheme in
Schatz
v.
Allen Matkins Leck Gamble & Mallory LLP
(2009)
In answering the question of whether Schatz was bound by the arbitration agreement, we framed the analysis in terms of whether the statutory language in the MFAA was designed to impliedly repeal the California Arbitration Act (CAA), which contemplated that binding arbitration agreements be enforced. We noted that all presumptions are against implied repeal, and that, absent an express declaration of legislative intent, courts will find an implied repeal only when there is no rational basis for harmonizing the two potentially conflicting statutes, and the statutes are irreconcilable, clearly repugnant, and so inconsistent that the two cannot have concurrent operation.
(Schatz, supra,
We concluded in
Schatz
that there was no such implied repeal. “ ‘Nothing in the MFAA makes [a binding] arbitration agreement. . . unenforceable. The MFAA and the CAA create two very different types of arbitration. . . . Both may be given effect. Clients may, if they wish, request and obtain nonbinding arbitration under the MFAA. That arbitration may, and often will, resolve the dispute. But if the client does not request nonbinding arbitration, or if it is held but does not resolve the dispute, then the MFAA has played its role, and the matter would continue without it. Either party may then pursue judicial action unless the parties had agreed to binding arbitration. In that event, the CAA would apply, and the dispute would go to binding arbitration. This
As in
Schatz,
we do not construe the Berman hearing procedures as impliedly repealing the CAA’s requirement that arbitration agreements be enforced. Thus, as in
Schatz,
notwithstanding the fact that Berman’s nonbinding dispute resolution procedure contemplates a de novo appeal to the superior court (§ 98.2, subd. (a)), we interpret that language to provide that “ ‘[e]ither party may . . . pursue judicial action unless the parties had agreed to binding arbitration. In that event, the CAA would apply, and the dispute would go to binding arbitration.’ ”
(Schatz, supra,
Like the Labor Commissioner below, we see no reason why the statutory protections afforded employees following a Berman hearing cannot be made available in an arbitration proceeding. 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.
The above framework does not purport to anticipate every problem that may arise from dovetailing the Berman hearing statutes and the CAA. But the Labor Commissioner’s position below that the Berman hearing was merely preliminary to, rather than preemptive of, binding arbitration confirms our conclusion that the two statutory schemes are compatible and that having the Berman hearing precede arbitration is workable.
That a Berman hearing and an arbitration pursuant to the CAA are compatible does not, of course, answer the question whether an employer can require an employee to waive a Berman hearing and go directly to arbitration as a condition of employment. We turn now to the question.
C. Does the Waiver of a Berman Hearing Violate Public Policy and Is It Unconscionable?
In determining whether a Berman waiver violates public policy, we first review the law related to mandatory employment arbitration agreements,
Here we must decide whether an employee in the context of an arbitration agreement can waive the right to a Berman hearing and posthearing protections. In concluding that such rights may be waived, the Court of Appeal first acknowledged, correctly, that the right to vacation pay was a vested right and therefore unwaivable under section 227.3.
3
(See
Suastez v. Plastic Dress-Up Co.
(1982)
The Court of Appeal elaborated: “[T]he record contains no evidence that Moreno or any other wage claimant lacks the knowledge, skills, abilities, or resources to vindicate his or her statutory wage rights in an arbitral forum. Even assuming the arbitral process is more difficult to navigate than the Berman process, there is nothing in this record to indicate that enforcing a Berman waiver will significantly impair the claimant’s ability to vindicate his or her statutory rights. In short, Moreno has failed to demonstrate either the inadequacy of the arbitral forum provided by his arbitration agreement or the existence of a factual basis to invalidate all Berman waivers as against public policy.”
In the present case, however, the question is not whether, in a court’s judgment, the absence of statutory protections afforded by the Berman hearing and the potential post-Berman protections would significantly impair Moreno’s ability to vindicate his unwaivable right to vacation pay in arbitration. Rather, the question is whether the employee’s statutory right to seek a Berman hearing, with all the possible protections that follow from it, is itself an unwaivable right that an employee cannot be compelled to relinquish as a condition of employment. We conclude that it is.
The question whether the waiver of a particular statutory protection is contrary to public policy essentially entails discerning legislative intent. Sometimes statutory rights are made expressly unwaivable. (See § 1194 [right to recover minimum wage notwithstanding any agreement]; Civ. Code, § 1751 [waiver of rights under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) unenforceable and void].) In other cases, whether a statute can be waived may be implied from the context and purpose of the statute. Thus, in
There is no question that the lawful payment of wages owed is not merely an individual right but an important public policy goal. As one appellate court correctly summarized the matter: “Civil Code section 3513 provides, in pertinent part, that: ‘[ajnyone 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.’ [f] 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)
Although the statutory protections that the Berman hearing and the post-hearing 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 of the Berman hearing statutes and hence thwart the public purpose behind the statutes.
In contrast, arbitration, notwithstanding its advantages as a reasonably expeditious means of resolving disputes, still generally bears the hallmark of a formal legal proceeding in which representation by counsel is necessary or at least highly advantageous. The arbitration in question here, for example, is to be conducted by a “retired California Superior Court Judge” and “to the extent applicable in civil actions in California courts, the following shall apply and be observed: 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.” The arbitrator’s award at either party’s request will 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 judgment
Thus, 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. 4 In short, the Berman hearing process, even when followed by binding arbitration, provides on the whole substantially lower costs and risks to the employee, greater deterrence of frivolous employer claims, and greater assurance that awards will be collected, than does the binding arbitration process alone. 5
Sonic argues that we can constme the arbitration agreement, as we did in
Armendariz,
to provide protections equivalent to those available during and after a Berman hearing. The argument is without merit. In
Armendariz,
Contrary to Sonic’s suggestion, and that of the dissent, the fact that the Berman hearing is merely an option for employees, who may also go directly to court (§ 218), does not alter the nonwaivability of the Berman hearing protections, for it is precisely that
option
which an employer may not foreclose 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,
Sonic finds support for the Court of Appeal’s holding in
Gentry,
in which we concluded that some class arbitration waivers are unlawful but declined to categorically declare invalid all such waivers.
Gentry
is readily distinguishable. Class arbitration is a judicially devised procedure. We acknowledged that class actions or arbitrations were not categorically necessary to vindicate statutory rights, and that under some circumstances, those rights could be adequately enforced by individual action. (Gentry;
supra,
42 Cal.4th at pp. 462, 464.) We further recognized the well-established principle that “ ‘[tjrial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action ....’”
(Id.
at pp. 463-64, quoting
Linder v. Thrifty Oil Co.
(2000)
Moreover, notwithstanding the Court of Appeal’s and Sonic’s suggestions, Berman hearings and posthearing protections are by their own terms made available to all statutorily eligible wage earners, not merely low-wage workers. This legislative determination cannot be modified by a judicial determination that employees earning something more than a low wage do not really require these protections and therefore can be required to waive them as a condition of employment. Sonic suggests that the fact that Moreno had been earning over $100,000 at the time he left his employment means that he would not be in the class of persons unable to afford counsel and eligible for representation by the Labor Commissioner in the event of an appeal. But extending this suggestion into an argument that a Berman waiver as applied to Moreno is not contrary to public policy suffers from at least three flaws. First, as Moreno’s counsel points out, there is nothing in the record regarding Moreno’s present financial condition. Second, the determination of whether a claimant is unable to afford counsel is vested solely in the Labor Commissioner under section 98.4, and a superior court deciding a petition to compel arbitration is in no position to guess what the commissioner’s determination will be. Third and most fundamentally, even if it could be determined that Moreno’s financial condition was such that he would not be
Our conclusion is the same if we analyze the issue in terms of unconscionability.
10
One common formulation of unconscionability is that it refers to “ ‘an absence of meaningful choice on the part of one of the parties
“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 against the employee, are subject to arbitration.
(Armendariz, supra,
Here, the arbitration agreement was a contract of adhesion indisputably imposed as a condition of employment. Moreover, we have recognized
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,
We note that the public policy and unconscionability defenses, albeit similar in some ways, are different in important respects. A public policy defense is concerned with the relationship of the contract to society as a whole, and targets contractual provisions that undermine a clear public policy, such as an unwaivable statutory right designed to accomplish a public purpose. (See
Armendariz, supra,
24 Cal.4th at pp. 100-101.) Unconscionability is concerned with the relationship between the contracting parties and one-sided terms
(id.
at p. 114), such that consent in any real sense appears to be lacking. Contracts can be contrary to public policy but not unconscionable (see
Board of Education
v.
Round Valley Teachers Assn.
(1996)
Such is the case here. On the one hand, to permit employers to require employees to waive the right to a Berman hearing as a condition of employment would gravely undermine the public policy behind the Berman hearing statutes, as discussed above. On the other hand, because the Berman hearing statutes accomplish their public policy goal of ensuring prompt payment of wages by according employees special advantages in their effort to obtain such payment, a provision in a contract of adhesion that requires the employee to surrender such advantages as a condition of employment is oppressive and one-sided, and therefore unconscionable. 11
D. Our Holding Is Not Preempted by the FAA
Sonic contends that a holding that a predispute waiver of a Berman hearing in an arbitration agreement is contrary to public policy and unconscionable would be preempted by the FAA. To address this claim, we begin by reviewing some basic principles pertaining to the enforcement of arbitration agreements and FAA preemption. “ ‘California law, like federal law, favors enforcement of valid arbitration agreements. [Citation.] . . . Thus, under both federal and California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’
(Armendariz, supra,
24 Cal.4th at pp. 97-98 . . . ; see also 9 U.S.C. § 2; Code Civ. Proc., § 1281.) In other words, although under federal and California law, arbitration agreements are enforced ‘in accordance with their terms’
(Volt Info. Sciences v. Leland Stanford Jr. U.
(1989)
The doctrine of unconscionability cannot be used, however, in a way that discriminates against arbitration agreements. In
Perry v. Thomas
(1987)
Here, our conclusion that Berman waivers are contrary to public policy and unconscionable does not discriminate against arbitration agreements. We neither construe the arbitration agreement “in a manner different from that in which [we would] construe[] nonarbitration agreements” nor do we “rely on
In arguing that the FAA preempts a state law rule precluding Berman waivers, Sonic relies in particular on
Preston, supra,
The Supreme Court reversed, holding that the TAA’s grant of primary jurisdiction to the Labor Commissioner, inasmuch as it thwarted the arbitration agreement, violated the FAA. Section 2 of the FAA, which requires enforcement of arbitration agreements “save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C. § 2) “ ‘declaréis] a national policy favoring arbitration’ of claims that parties contract to settle in that manner.
Southland Corp.
[v.
Keating
(1984)] 465 U.S. [1], 10 [
“A recurring question under § 2 is who should decide whether ‘grounds . . . exist at law or in equity’ to invalidate an arbitration agreement. In
Prima Paint
The
Preston
court then concluded that
“Buckeye
largely, if not entirely, resolves the dispute before us. The contract between Preston and Ferrer clearly ‘evidenced] a transaction involving commerce,’ 9 U. S. C. §2, and Ferrer has never disputed that the written arbitration provision in the contract falls within the purview of §2. Moreover, Ferrer sought invalidation of the contract as a whole. In the proceedings below,
he made no discrete challenge to the validity of the arbitration clause.
[Citation.] Ferrer thus urged the Labor Commissioner and California courts to override the contract’s arbitration clause on a ground that
Buckeye
requires the arbitrator to decide in the first instance.”
(Preston, supra,
The Supreme Court then rejected Ferrer’s argument that the case was distinguishable from
Buckeye
because “the TAA merely requires exhaustion of administrative remedies before the parties proceed to arbitration.”
{Preston, supra,
“Procedural prescriptions of the TAA thus conflict with the FAA’s dispute resolution regime in two basic respects; First, the TAA, in § 1700.44(a), grants the Labor Commissioner exclusive jurisdiction to decide an issue that
The Supreme Court further rejected Ferrer’s
contention “that the
TAA is nevertheless compatible with the FAA because § 1700.44(a) merely postpones arbitration until after the Labor Commissioner has exercised her primary jurisdiction” and that after that proceeding “either party could move to compel arbitration under Cal. Civ. Proc. Code Ann. § 1281.2 (West 2007), and thereby obtain an arbitrator’s determination prior to judicial review.”
(Preston, supra,
The
Preston
court distinguished the case before it from
EEOC v. Waffle House, Inc.
(2002)
We agree with the Court of Appeal that
Preston
is distinguishable. In this case, unlike in
Buckeye
and in
Preston,
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.
Buckeye
therefore does not apply. 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.
13
In fact, notwithstanding Ferrer’s argument that those in his position would be deprived of the Labor Commissioner’s expertise
(Preston, supra,
Sonic makes much of a paragraph in
Preston
that it argues supports its position. As noted above, the court stated: “A prime objective of an agreement to arbitrate is to achieve ‘streamlined proceedings and expeditious
This statement cannot be read, as Sonic urges, to mean that any state law procedure that delays the commencement of arbitration is preempted by the FAA. Rather, the Preston court’s statement, read in context, is quite narrow. It merely affirms that a violation of the Buckeye rule will not be excused if the administrative agency displacing the arbitrator’s jurisdiction does so only preliminarily and is subject to de novo review in arbitration, because such displacement is not costless, but in fact would lead to delay. (Preston, supra, 552 U.S. at pp. 357-358.) But here Buckeye does not apply, because of Moreno’s meritorious challenge to a provision in the arbitration agreement itself. The above quoted statement explaining why the Buckeye rule applies notwithstanding the fact that arbitration may be delayed rather than denied cannot justifiably be expanded into a statement asserting that any time an arbitration is delayed by application of a state statute, even when Buckeye does not apply, the statute must be invalidated.
In arriving at this conclusion, we make clear that a state legislature or court cannot insulate itself from an FAA preemption challenge merely by declaring that the waiver of an administrative forum in an arbitration agreement is against public policy. (See
Perry, supra,
We reach the same conclusion regarding Moreno’s unconscionability defense. Under both the CAA and the FAA, the validity and enforceability of an arbitration agreement are based on the consent of the parties to that agreement. (See
Stolt-Nielsen S.A. v. AnimalFeeds International Corp.
(2010) 559 U.S._,_-_ [
In short, our holding invalidating Berman waivers neither falls within the purview of Preston and Buckeye, nor relies on rules of contract law that particularly disfavor arbitration, but rather is based on the generally applicable contract defenses of unconscionability and violation of public policy. We therefore conclude our holding is not preempted by the FAA.
m. Disposition
As noted, the superior court order stated that “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.” The judgment of the Court of Appeal is reversed and the cause is remanded with directions to reinstate the superior court’s order.
Kennard, Acting C. J., Werdegar, J., and George, J., * concurred.
Both California and federal law strongly favor judicial enforcement of arbitration agreements according to their terms. The majority’s conclusion that the arbitration agreement in this case is contrary to public policy—and therefore unenforceable—is inconsistent with the state and federal policies favoring enforcement of arbitration agreements and is inconsistent with decisions of both this court and the United States Supreme Court. Moreover, because, as the United States Supreme Court recently held, federal law—the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.)— “supersede^]” state laws that “lodg[e] primary jurisdiction” over a dispute the parties have agreed to arbitrate in an “administrative” forum
(Preston v.
I also do not join the majority’s holding that the arbitration provision in this case is unconscionable—and therefore unenforceable—insofar as it precludes the wage claimant from requesting an administrative hearing—-known as a “Berman hearing”—before submitting his claim for vacation pay to arbitration. Procedurally, we should not reach this issue, because the claimant did not pursue it in the trial court, in the Court of Appeal, or in this court until we requested briefing on it. Substantively, the majority errs by discounting the benefits to the employee of waiving the right to pursue a Berman hearing. It also errs in focusing narrowly only on what it calls the “Berman waiver.” (Maj. opn., ante, at p. 669.) In assessing substantive unconscionability, we should instead focus broadly on the purpose and benefits of the arbitration provision as a whole. Viewed from this broader perspective, the arbitration provision is not unconscionable.
For these reasons, I dissent.
I. Factual Background.
Frank Moreno was an employee of Sonic-Calabasas A, Inc. (Sonic). In December 2006, after voluntarily ending his employment, Moreno filed a wage claim with the Labor Commissioner pursuant to Labor Code section 98 et seq. 1 seeking allegedly unpaid “vacation wages” for 63 days at the rate of $441.29 per day. He also requested “additional wages accrued pursuant to Labor Code Section 203 as a penalty.”
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 had signed, 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
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 may be interpreted to preclude Moreno from pursuing a Berman hearing, it substantially burdens his ability to vindicate his right to vacation pay and, therefore, is unenforceable as against public policy.
The superior court denied the petition to compel arbitration, finding 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 that this waiver does not substantially burden Moreno’s ability to vindicate his right to vacation pay and, therefore, is not unenforceable as against public policy.
H. Enforcement of the Arbitration Provision Does Not Violate California’s Public Policy.
Through enactment of a comprehensive statutory scheme regulating private arbitration, the Legislature “has expressed a ‘strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.’ [Citations.]”
(Moncharsh
v.
Heily & Blase
(1992)
The clearest expression of California’s policy favoring arbitration appears in Code of Civil Procedure section 1281, which declares that “[a] written
In
Discover Bank v. Superior Court
(2005)
In several relatively recent decisions, we have discussed the scope of the public policy exception to the statutory rule that arbitration agreements are enforceable according to their terms. In
Armendariz
v.
Foundation Health Psychcare Services, Inc.
(2000)
We next took up the issue in
Gentry v. Superior Court
(2007)
Applying the framework of Armendariz and Gentry, the Court of Appeal in this case first considered whether the right to vacation pay is an unwaivable statutory right. Concluding that it is, the court then considered whether arbitration would significantly impair Moreno’s ability to vindicate this right. Finding nothing in the record to indicate that it would, the Court of Appeal held that the arbitration provision is enforceable.
The Court of Appeal correctly applied
Armendariz
and
Gentry.
As the majority observes, “ ‘[t]he Berman hearing procedure is designed to provide a speedy, informal, and affordable method of resolving wage claims.’ ” (Maj. opn.,
ante,
at p. 672.) Arbitration is similarly designed; our public policy favors arbitration precisely because it is a speedy, informal, and relatively inexpensive means of dispute resolution.
(Broughton
v.
Cigna Healthplans
(1999)
There are several indications that the Legislature agrees with this conclusion. To begin with, nothing in the language of the statutes setting forth the Berman procedures (the Berman statutes) even hints that those procedures are nonwaivable or that an employee may not agree to arbitrate a claim. Moreover, under the statutes, there is, in fact, no right to a Berman hearing; there is only a right to file a complaint requesting a Berman hearing. As the majority observes, in response to the filing of such a complaint, the Labor Commissioner has three options: (1) hold a Berman hearing; (2) prosecute a civil action; or (3) take no action on the complaint. (Maj. opn., ante, at p. 672.) The benefits of a Berman hearing are potentially available only if the Labor Commissioner chooses the first option. Finally, as the majority also observes, an employee may choose to skip the administrative procedure entirely and go directly to court. (Maj. opn., ante, at p. 671.) The Legislature’s failure to make a Berman hearing mandatory and the absence of any language prohibiting waiver suggest that, in the Legislature’s view, an employee may adequately vindicate the statutory right to vacation pay in an alternative forum, such as arbitration. I see no reason to reject the Legislature’s view.
Notably, the majority does not contend otherwise. It does not assert that requiring Moreno to arbitrate according to his agreement would either eliminate or substantially burden his ability to vindicate his right to vacation pay. In fact, according to the majority, notwithstanding
Armendariz
and
Gentry,
that is not even the relevant inquiry. Instead, the majority asserts, “the question [here] is whether [an] employee’s statutory right to seek a Berman hearing, with all the possible protections that follow from it, is itself
Initially, I note that the majority’s formulation of the issue here is completely at odds with Moreno’s. As he did in the trial court and the Court of Appeal, Moreno has consistently argued in this court that the arbitration agreement is against public policy—and thus unenforceable—because arbitration lacks some of the procedural advantages that may come with a Berman hearing and therefore “would drastically undercut his ability to vindicate” his nonwaivable, statutory right to vacation pay. Indeed, according to Moreno, analyzing whether the alleged benefits of a Berman hearing “are substantive, unwaivable rights in their own”—which is precisely what the majority does—“confuses what it is that is unwaivable—the underlying statutory right to payment of accrued vacation wages upon separation of employment—with the remedial tools that flow from the Labor Commissioner’s wage adjudication process.” Thus, the majority’s analysis will, no doubt, come as a surprise to the parties.
Substantively, as to whether an employee’s statutory right to request a Berman hearing is itself waivable, irrespective of an employee’s ability to vindicate his or her right to vacation pay in arbitration, the “established rule” in California is that “rights conferred by statute may be waived unless specific statutory provisions prohibit waiver.”
(Bickel v. City of Piedmont
(1997)
Here, the relevant statutes contain no language even hinting that the right to request a Berman hearing is unwaivable or that the holding of a Berman hearing is mandatory. Indeed, by allowing employees to skip the administrative process entirely and go directly to court, the statutory language suggests
Again, the majority does not assert otherwise. Instead, in concluding that the right to request a Berman hearing is unwaivable, the majority invokes the principle that a law established for a public reason may not be contravened by a private act or agreement. (Maj. opn., ante, at pp. 678-680.)
For several reasons, the majority’s analysis is unpersuasive. First, given that the Legislature has already established a public policy of allowing waiver—by not making a Berman hearing mandatory and by allowing employees to go directly to court without requesting a Berman hearing—it seems inappropriate for this court to adopt a contrary view of public policy. Second, as the court’s opinion in
Bickel
explained, “[sjome public benefit is . . . inherent in most legislation.”
(Bickel, supra,
This conclusion is consistent with analogous authority from both this court and the United States Supreme Court. In
Mitsubishi Motors v. Soler Chrysler-Plymouth
(1985)
In
Shearson/American Express, Inc. v. McMahon
(1987)
In
Rodriguez de Quijas v. Shearson/Am. Exp.
(1989)
In
Gilmer
v.
Interstate/Johnson Lane Corp.
(1991)
In several decisions, we have followed these high court precedents to uphold the validity of predispute arbitration agreements. In
Broughton, supra,
In
Cruz
v.
PacifiCare Health Systems, Inc.
(2003)
III. The Berman Statutes, as the Majority Construes Them, Are Preempted by the FAA.
As the high court has explained, the FAA not only declares a liberal federal policy favoring arbitration agreements, it creates a body of federal substantive law that requires courts to enforce privately negotiated arbitration agreements within the FAA’s coverage according to their terms.
(Volt Info. Sciences
v.
In
Preston,
the high court recently made clear that the FAA preempts not only state laws that require a judicial forum for resolution of disputes the parties have agreed to arbitrate, but also “state statutes that refer [such] disputes initially to an administrative agency.”
(Preston, supra,
The majority holds that the Berman statutes do precisely what
Preston
says, under the FAA, a state statute may not do: lodge primary jurisdiction over a dispute in an administrative agency notwithstanding the parties’ agreement to arbitrate that dispute. Under
Preston,
the Berman statutes, so construed, directly conflict with the FAA and violate the supremacy clause of the United States Constitution (U.S. Const., art. VI, cl. 2).
Preston
also establishes that the availability of arbitration after a Berman hearing, as part of the statutory de novo review process, does not permit a different conclusion. What the high court said about the TAA in
Preston
fully applies to the Berman statutes, as the majority construes them: “Requiring initial reference of the parties’ dispute to the Labor Commissioner would, at the least, hinder speedy resolution of the controversy.”
(Preston, supra, 552
U.S. at p. 358.) In this regard, the majority acknowledges that we noted in 1998 that the time between filing a complaint with the Labor Commissioner and a Berman hearing date was usually four to six months, and that Sonic has documented cases in which the commencement of a Berman hearing took a year or more. (Maj. opn.,
ante,
at p. 681, fn. 5.) Moreover, as we have previously observed, because either party to a Berman hearing “has a right to a trial de novo in superior court, where the ruling of the Labor Commissioner’s hearing officer is entitled to no deference,” “Berman hearings may result in no cost savings” to the parties.
(Gentry, supra,
The majority’s grounds for distinguishing
Preston
are unpersuasive. The majority first observes that unlike
Preston,
which involved a challenge to the parties’ “contract as a whole,” this case involves a challenge only “to a portion of the arbitration agreement.” (Maj. opn.,
ante,
at p. 692.) This observation, although accurate, is irrelevant. In
Preston,
the circumstance that
The majority next asserts that Preston is distinguishable because of “the fundamental differences” between the TAA and the “statutory regime[]” now before us. (Maj. opn., ante, at p. 692.) According to the majority, because the TAA “does not come with the same type of statutory protections as are found in the Berman hearing and posthearing procedures,” Preston does not govern. (Maj. opn., ante, at p. 692.)
The potential procedural advantages the Legislature has attached to a Berman hearing do not render
Preston
inapplicable. Under
Preston,
were our Legislature, based on its view of public policy, to enact a statute requiring administrative determination of a claim before resort to any other forum, the FAA would preempt that statute’s enforcement where the parties have agreed, in a predispute agreement evidencing interstate commerce, to arbitrate that claim. Indeed, this conclusion follows not just from
Preston,
but from other decisions in which the high court has expressly “rejected the proposition that the enforceability of [an] arbitration agreement tum[s] on [a] state legislature’s judgment concerning the forum for enforcement of [a] state-law cause of action. [Citation.]”
(Buckeye Check Cashing, Inc. v. Cardegna
(2006)
The majority’s analysis is inconsistent with
Southland.
Contrary to the majority’s conclusion, under
Southland,
“the defense to arbitration” the majority has read into the Berman statutes—based on a state public policy that precludes waiver of a Berman hearing’s potential procedural advantages—“is 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 Berman statutes.
(Southland, supra,
The majority’s analysis is also inconsistent with the high court’s more recent decision in
Buckeye, supra,
Again,
Preston
conclusively refutes the majority’s understanding of the FAA. There, in holding that the FAA preempts the TAA, the high court distinguished between an agency acting in the role of “adjudicator” and an agency acting in the role of “prosecutor, pursuing an enforcement action in its own name or reviewing a . . . charge to determine whether to initiate judicial proceedings.” (Preston,
supra,
The majority alternatively holds that the arbitration provision is unconscionable insofar as it precludes Moreno from requesting a Berman hearing before submitting his claim to arbitration. For both procedural and substantive reasons, I do not join this holding.
Procedurally, we should not reach the issue. In
Pearson Dental Supplies, Inc. v. Superior Court
(2010)
Alternatively, rather than decide the merits, we should remand the issue of unconscionability for consideration in the lower courts, as we did a similar claim in
Boghos v. Certain Underwriters at Lloyd’s of London
(2005)
Substantively, the majority’s analysis is unpersuasive. The majority finds that a predispute “Berman waiver” is “markedly one sided” because it “only benefits] the employer at the expense of the employee” and the majority finds itself unable to say that the benefits of arbitration “compensate[]” the employee for giving up the option of a Berman hearing. (Maj. opn., ante, at p. 686.) Thus, the majority declares, “the main purpose of the Berman waiver appears to be for employers to gain an advantage in the dispute resolution process by eliminating the statutory advantages accorded to employees designed to make that process fairer and more efficient.” {Ibid., italics added.) However, as previously noted, because of the de novo review process under the Berman statutes, a decision to waive the administrative option potentially saves the employee both time and money. The majority’s analysis disregards these substantial benefits. 8
Moreover, the focus of the majority’s analysis is incorrectly narrow. Contrary to what the majority’s discussion suggests, the agreement at issue here does not contain a “Berman waiver” per se. Rather, as noted above, it contains a broad, bilateral arbitration provision that applies, with certain exceptions, 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.’ ” (See, ante, at p. 696.) It is this broad, bilateral provision for arbitration that encompasses, among other things, what the majority calls “the Berman waiver.” An assessment of substantive unconscionability should consider the purpose and benefits to the employee of this broad arbitration provision. Thus, the majority errs in focusing narrowly only on the purpose and benefits of the provision insofar as it constitutes a waiver of Berman procedures.
Viewed from a broader perspective, the arbitration provision is not unconscionable. As noted above, it requires
both
the employer and the employee to submit all of their claims against each other to binding arbitration, subject to
V. Conclusion.
The laws of both California and the United States require courts to enforce arbitration agreements according to their terms, absent a ground for revocation of any contract. Because no such ground exists in this case, the arbitration provision at issue is fully enforceable. The majority’s contrary conclusion is inconsistent with federal and state law, and renders California’s statutory scheme preempted by the FAA.
Of greater concern than the fate of the arbitration provision at issue in this case are the far-reaching implications of the majority’s decision for arbitration in California. Under the majority’s analysis, for an arbitration agreement to be valid and enforceable, it is no longer enough that arbitration allows full vindication of the substantive statutory right at issue. To invalidate an arbitration agreement, a court need only find some advantageous procedure that the Legislature has attached to a particular forum, and declare—without any indication from the Legislature—that waiver of that procedure is against public policy. Under the majority’s analysis, for an arbitration agreement to be valid and enforceable, it also is no longer enough that an employer, like its employee, agrees to arbitrate
all
of its claims, and even provides for exceptions to arbitration that may be invoked only by the employee. To invalidate an arbitration agreement as impermissibly one-sided and unconscionable, a court, isolating one claim from the many the parties have agreed to arbitrate, need only declare itself unable to say that the benefits the employee gains from arbitration
of that isolated claim
compensate for what the employee loses. In these respects, the majority’s decision substantially
Baxter, J., and Corrigan, J., concurred.
Notes
All statutory references are to this code unless otherwise indicated.
That section 98.2, subdivision (c) is especially protective of employees is evident from the last sentence of that subdivision and the legislative history behind it. Before the statute was amended in 2003, it did not explicitly provide that an employee would be considered successful on appeal if the court awards an amount greater than zero (cf. Stats. 2002, ch. 784, § 522), but Court of Appeal decisions construed the statute in that manner.
(Cardenas
v.
Mission Industries
(1991)
Section 227.3 states in part: “Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination.”
At oral argument, Sonic’s counsel argued that its arbitration in fact resembled a Berman hearing in its informality, and the arbitrator would or might incorporate Berman-like protections such as one-way fee shifting. Nothing in the arbitration agreement, nor anything else in the record before us, confirms these representations. It may be possible for an arbitration system to be designed so that it provides an employee all the advantages of the Berman hearing and posthearing protections. But there is no indication that the present arbitration system is so designed.
Nor are we persuaded to the contrary by assertions about arbitration’s greater expedition. Based on the various statutory deadlines, as well as memoranda by the Labor Commissioner and declarations by labor law attorneys, we concluded in 1998 that the time between filing a complaint with the Labor Commissioner and a Berman hearing date is usually four to six months. (Cuadra, supra, 17 Cal.4th at pp. 860-862 & fn. 7.) Sonic, in its petition to compel arbitration below, documented three cases in which the commencement of a Berman hearing took longer than this average, in one case slightly under four years, in two other cases slightly under one year. No doubt the time between the filing of an administrative complaint and commencement of a Berman hearing is subject to variation. Whether the delays represent a backlog in the Labor Commissioner’s workload, or were generated by the parties themselves, or how these times compare to the completion of an arbitration, is not clear. It may be the case that once a dispute has arisen, some employees’ assessment of the time it will take to conduct a Berman hearing, when compared to the time it will take to resolve a claim by going directly to arbitration, will weigh in favor of the latter course. That an employee may make this assessment does not alter the fact that he or she gains no advantage, and places himself or herself at a possible significant disadvantage, by agreeing to waive the option of a Berman hearing in advance as a condition of employment.
This is not to say that
Armendariz
is irrelevant in the context of post-Berman-hearing arbitration. As Sonic appears to have conceded at oral argument, Armendariz’s procedural protections, and in particular its fee-shifting requirement, are applicable. A wage claimant who has undergone a Berman hearing cannot be compelled to bear arbitration forum costs he or she would not be required to pay if the employer appealed to the superior court. (See
Armendariz, supra,
We thus do not decide whether it is contrary to public policy to knowingly and voluntarily waive the right to seek a Berman hearing as part of a freely negotiated, nonstandard contract, such as may exist between an employer and a highly compensated executive employee.
Sonic also cites in support
Giuliano
v.
Inland Empire Personnel, Inc.
(2007)
The dissent goes to great lengths in its attempts to show that a Berman waiver is not contrary to public policy. Yet it does not contest in any concrete way that Berman hearings and posthearing protections provide important advantages to employees not present if the employee went directly to arbitration, or that permitting a Berman hearing waiver as a condition of employment would substantially undermine the legislative policy behind the Berman hearing statutes. It is true, as discussed above, that a given employee may choose to forgo a Berman hearing and go directly to arbitration, perhaps concluding, for example, that his or her strong case may be resolved more quickly. But whatever advantages arbitration without a Berman hearing may have for an employee will be realized if the employee is given a choice, once a wage dispute arises, of going directly to arbitration or going first to the Labor Commissioner. It is precisely this choice that the Berman statutes authorize and the predispute waiver at issue in this case, which the dissent would uphold, seeks to revoke. Moreover, the dissent’s conjecture that employers who cannot insert Berman waivers into arbitration agreements will likely abandon arbitration of wage claims (dis. opn., post, at p. 714, fn. 8) is groundless speculation. The dissent also seeks to minimize the public importance of the Berman hearing legislation, notwithstanding venerable case law discussed above affirming that the collection of wages owed not only vindicates individual rights but fulfills an important public purpose. (See Armendariz, supra, 24 Cal.4th at pp. 100-101 [anti-employment-discrimination statutes unwaivable notwithstanding significant individual benefit to employees].) Nor does the dissent’s lengthy discussion of the case law of the United States Supreme Court and this court (see dis. opn., post, at pp. 702-706)—case law that merely stands for the uncontroversial proposition that statutory claims are generally arbitrable—shed light on the present case. Nor is the dissent correct when it asserts that our public policy arguments are at odds with those of Moreno. Moreno argues vigorously that the Berman waiver, by forcing employees to forego the various statutory advantages discussed above and in great detail in his briefs, “limits the remedies that would otherwise be available to enforce employees’ statutory rights [e.g., one-way fee-shifting and undertaking requirements], and . . . imposes costs exceeding those that the employee would normally incur [e.g., costs of counsel].” We agree.
We requested supplemental briefing on the unconscionability issue, which was not argued in the courts below. Sonic contends that we should not address unconscionability, principally
Moreover, Moreno did raise the unconscionability issue below as an affirmative defense to the petition to compel arbitration. Although as a matter of general policy we do not decide issues not raised in the Court of Appeal (Cal. Rules of Court, rule 8.500(c)(1)), we may depart from that policy when an important countervailing purpose would be served.
(Cedars-Sinai Medical Center v. Superior Court
(1998)
The dissent argues that the agreement “viewed from a broader perspective ... is not unconscionable” (dis. opn.,
post,
at p. 714) because the agreement binds both parties to arbitrate all disputes, subject to certain exceptions (dis. opn.,
post,
at pp. 715-716). The argument is off the mark. It is true that an arbitration agreement may be unconscionable when it requires “arbitration only for the claims of the weaker party but a choice of forums for the claims of the stronger party.”
(Armendariz, supra,
We note that in general, the question whether an arbitration agreement is unconscionable or contrary to public policy is for the court, not the arbitrator, to decide.
(Discover Bank, supra,
Section 1700.44, subdivision (a) does require that a party wishing to stay the Labor Commissioner’s monetary award on appeal post a bond not exceeding twice the amount of the judgment. This provision applies to whichever party to a TAA proceeding seeks a stay, in contrast to section 98.2, subdivision (b), which imposes an undertaking requirement exclusively on the employer.
The dissent, in arguing for preemption of the public policy defense, cites a number of United States Supreme Court cases affirming the proposition that a state may not, in the name of public policy and the supposed superiority of litigation over arbitration, require the substitution of a judicial forum for an arbitral one. (See dis. opn.,
post,
at pp. 707-714; see also
Carter v. SSC Odin Operating Co., LLC
(2010)
Retired Chief Justice of California, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
All further unlabeled statutory references are to the Labor Code.
Moreover, upon examination, the potential procedural advantages of a Berman hearing are not as great as the majority indicates. Ironically, what the majority views as a vice of the arbitration agreement here at issue—the provision for discovery (maj. opn., ante, at p. 680)—we held in Armendariz to be a virtue—indeed a requirement—of a valid and enforceable arbitration agreement. (Armendariz, supra, 24 Cal.4th at pp. 90-91.) Also, the holding of a Berman hearing may actually hinder an employee’s ability to vindicate his or her right to vacation pay; the Berman statutes discourage employees who lose at Berman hearings from seeking judicial review by providing that they must, if unsuccessful on appeal, pay their employers’ costs and attorney’s fees. (§ 98.2, subd. (c).)
In
Broughton,
a bare majority of the court also held that a predispute agreement to arbitrate a CLRA for
injunctive
relief is not enforceable, based on its view that such relief “is for the benefit of the general public rather than the party bringing the action.”
(Broughton, supra,
Moreover, in light of these provisions, enforcing an employee’s waiver of the right to pursue a Berman hearing does not, as the majority asserts, “undermine the legislative policy behind the Berman hearing statutes.” (Maj. opn., ante, at p. 684, fn. 9.)
Contrary to Gilmer, the majority holds that mandatory, predispute agreements to arbitrate a claim for vacation pay are generally unenforceable, but leaves open the possibility that such an agreement is enforceable “as part of a freely negotiated, nonstandard contract, such as may exist between an employer and a highly compensated executive employee.” (Maj. opn., ante, at p. 682, fn. 7.)
In this regard,
Buckeye
also establishes that this court’s earlier decisions in
Broughton
and
Cruz
are incorrect insofar as they hold that, notwithstanding the FAA, California may prohibit arbitration of claims for injunctive relief under the CLRA, the UCL, and for false advertising,
The majority asserts that the FAA does not preempt the Berman statutes insofar as they prohibit “Berman waivers” because that prohibition “does not discriminate against arbitration agreements” and applies “equally” to waivers that “appear[] . . . independent of arbitration.” (Maj. opn., ante, at pp. 688-689.)
However, as the Illinois Supreme Court recently explained, the California statute the high court found preempted in Preston “did not single out or target arbitration agreements
The majority incorrectly assumes that, under its holding, an employee will necessarily have the choice, after a dispute arises, of going directly to arbitration or pursuing a Berman hearing first. (Maj. opn.,
ante,
at p. 684, fn. 9.) In light of the majority’s holding, parties in the future will likely exclude from predispute arbitration agreements claims that would be subject to the Berman statutes. Thus, after a dispute arises, an employee who has signed such an agreement will not be able to choose arbitration absent the employer’s agreement. Indeed, in light of the majority’s holding, it is not even clear in this case that either Moreno or Sonic may, without the other’s agreement, insist on arbitration either before or after a Berman hearing. (Cf.
Gentry, supra,