California Supreme Court Recognizes Concepcion Requires Reversal Of Sonic-Calabasas But Continues To Display Skepticism Toward Arbitration

On October 17, 2013, the California Supreme Court issued its second decision in Sonic-Calabasas v. Moreno. In Sonic I, the court ruled that an arbitration agreement's waiver of an administrative hearing on wage claims was void and unenforceable. In Sonic II, the court reversed its prior decision, holding that the Federal Arbitration Act ("FAA") preempted any rule categorically prohibiting arbitration agreements that include waiver of administrative hearings. However, the court reaffirmed that traditional defenses to contracts, such as unconscionability, may still be used to prevent enforcement of an arbitration agreement. In 2011, the California Supreme Court held in Sonic-Calabasas v. Moreno, 51 Cal. 4th 659, 671-72 (2011), that an employer could not use a binding arbitration agreement signed by an employee as a condition of employment to avoid the employee's right to invoke an administrative procedure, known as a Berman-hearing, to make a wage claim against her employer. The court held that "requiring" the employee to waive the Berman-hearing violated public policy and was unconscionable. In so ruling, the court rejected the arguments of the employer that refusing to enforce the arbitration clause violated the FAA. The FAA provides that arbitration clauses are "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. The California Supreme Court acknowledged that the U.S. Supreme Court has made clear that the FAA's "Saving Clause" cannot be used to discriminate against arbitration agreements. Id. at 688 (citing Perry v. Thomas, 482 U.S. 483, 492-93 (1987). Nonetheless, the California Supreme Court concluded that its invalidation of the Berman-hearing waiver did not discriminate against arbitration agreements because its prohibition applied to all such waivers, whether included in an arbitration agreement or some other agreement. Id. at 688-89. Upon review, the U.S. Supreme Court vacated the California Supreme Court's judgment and remanded the case for reconsideration in light of the U.S. Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). In Concepcion, plaintiffs challenged an arbitration agreement that required all disputes to be brought on an individual basis and prohibited the formation of any class for purposes of resolving disputes. The district court held that under California law, a waiver of class arbitration was...