Labor & Employment Law

Arbitration agreement cannot waive right to administrative wage hearing

The California Supreme Court held today [Sonic-Calabasas A Inc v. Moreno (California 02/24/2011) (4-3)] that an arbitration agreement cannot waive an employee's right to have an administrative hearing to resolve a claim for unpaid wages.

Under California's unpaid wages statute, an employee can seek an administrative hearing which results in a nonbinding decision, followed by an appeal de novo to a trial court. Moreno, who had signed an agreement to arbitrate all claims, filed an administrative wage claim with the state Labor Commissioner. The employer petitioned the trial court to compel arbitration and dismiss the administrative proceeding, but this was denied as premature. The California Supreme Court agreed that the petition to compel arbitration was premature and must be denied, holding that:

(1) A waiver of the administrative hearing violates public policy. The right to this administrative proceeding is an unwaivable right that an employee cannot relinquish as a condition of employment. The administrative proceeding provides many benefits to employees (e.g., the Labor Commissioner's representation in the superior court of employees unable to afford counsel, the requirement that the employer post an undertaking in the amount of the award, and a one-way attorney fee provision that requires an employer that is unsuccessful in the appeal to pay the employee's attorney fees) as a means of furthering the public purpose of ensuring the payment of wages owed.

(2) A waiver of the administrative hearing is unconscionable because the arbitration agreement was an adhesion agreement and the waiver is "markedly one-sided."

(3) The Federal Arbitration Act does not preempt a decision that waiver of the administrative proceeding violates public policy and is unconscionable. [Ed. Note: A decision on a closely related issue is pending in the US Supreme Court in AT&T Mobility v. Concepcion.]

(4) Courts may enforce the arbitration agreement as it relates to the court proceedings that may follow after the administrative hearing is held.

The DISSENT argued that (1) when parties have agreed to arbitrate, the Federal Arbitration Act supersedes state laws that lodge primary jurisdiction in administrative agencies, and (2) enforcing the arbitration provision does not violate California public policy and is not unconscionable.

Full post as published by Arbitration Blog on February 24, 2011 (boomark / email).