Through The Lens Of Concepcion: California Supreme Court Revisits The Validity Of Agreements Requiring Employee Waiver Of Wage Claim Administrative Processes

Almost one year after the U.S. Supreme Court summarily vacated the original 2011 Sonic-Calabasas opinion (Sonic I1), the California Supreme Court issued its opinion on remand in Sonic-Calabasas A, Inc. v. Moreno (Sonic II2).

The Court's five-to-two Sonic II majority opinion conceded that U.S. Supreme Court precedent and the Federal Arbitration Act (FAA) preclude California courts from striking down arbitration agreements simply because they deny an employee's access to administrative wage claim (Berman) hearings in lieu of an arbitral process.

Despite the Court's recognition that "courts cannot impose unconscionability rules that interfere with arbitral efficiency,"Sonic II affirms California courts' continuing authority to invalidate arbitration agreements that are unfair (unconscionable) to employees.

The Case's History

In Sonic I, the Court held that arbitration agreements that required employees to waive the right to a Berman hearing (an administrative hearing before the Labor Commissioner in wage disputes) were categorically unenforceable as contrary to public policy and were also unconscionable.

In October 2012, the U.S. Supreme Court summarily vacated Sonic I for reconsideration in light of the U.S. Supreme Court's 2011 decision in AT&T Mobility LLC v. Concepcion (Concepcion).3 In Concepcion, the U.S. Supreme Court overruled a California Supreme Court holding that state public policies supporting the availability of class-wide relief for small individual fraud claims trumped an arbitration clause that required bilateral, non-class arbitration only.

The Sonic II Decision

Sonic II's core holding is that the FAA pre-empts Sonic I's ruling categorically prohibiting an adhesive arbitration agreement from requiring an employee to waive access to a Berman hearing. However, in an important counterpoint, the majority opinion also reiterated the availability of the unconscionability defense in analyzing the validity of an arbitration agreement under California law. The decision described the unconscionability doctrine as "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." Any arbitral remedy imposed by an employer in an agreement with an employee must be "accessible and affordable."

The majority opinion, authored by Justice Goodwin Liu, provided examples of unconscionable agreements which would not "interfere[ ] with the fundamental attributes...