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Sonic-Calabasas A - Binding Arbitration Agreement Compels Dismissal of Berman Proceedings

In Sonic-Calabasas A, Inc. dba Acura 101 West v. Moreno (2009) __ Cal.App.4th __, the Court of Appeal considered whether an admittedly valid employment arbitration agreement that is governed by the Federal Arbitration Act may be enforced to dismiss an employee’s administrative wage claim against his former employer for unpaid vacation pay. The employee brought the claim with the Labor Commissioner according to the “Berman” process provided in Labor Code §§ 98 et seq. The employer responded with a petition to compel arbitration and to dismiss the Berman proceeding. The superior court denied the petition as premature. The Court of Appeal reversed.

Sonic contends that the Labor Commissioner’s jurisdiction over this statutory wage claim was divested by the FAA.  Sonic cites as controlling authority the United States Supreme Court’s recent decision in Preston v. Ferrer (2008) ___ U.S. ___ [128 S.Ct. 978] (Preston), in which the Labor Commissioner’s original and exclusive jurisdiction was held to be divested by the FAA with regard to a contract dispute arising under the Talent Agencies Act (§ 1700 et seq.) (TAA).  Alternatively, Sonic argues that even if the minimum requirements for arbitration set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz) apply to this statutory wage claim, a Berman hearing is not a prerequisite to arbitration, either under Armendariz or Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry). We conclude that Moreno waived his right to a Berman proceeding and enforcement of that waiver is not barred by Armendariz or Gentry.

How the court gets there in its analysis is an interesting read. The Court of Appeal found that Preston was not dispositive, and that Sonic's view of the holding in Preston was too broad.

Before concluding that the Labor Commissioner’s jurisdiction was preempted by the FAA, the Supreme Court emphasized that the validity and substantive rights of the arbitration agreement were not in dispute, stating:  “Finally, it bears repeating that Preston’s petition presents precisely and only a question concerning the forum in which the parties’ dispute will be heard.  See supra, at 983.  ‘By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral . . . forum.’  Mitsubishi Motors Corp., 473 U.S., at 628, 105 S.Ct. 3346.  So here, Ferrer relinquishes no substantive rights the TAA or other California law may accord him.  But under the contract he signed, he cannot escape resolution of those rights in an arbitral forum.”  (Preston, supra, 128 S.Ct. at p. 987.)

For the above reasons, the Supreme Court concluded that the Labor Commissioner’s jurisdiction over the administrative action was divested by the FAA.  But it expressed this conclusion in a broadly worded statement:  “We hold today that, when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA.”  (Preston, supra, 128 S.Ct. at p. 981.)  By focusing solely on the breadth of this holding, Sonic argues that, under Preston, we are compelled to conclude the FAA preempts the Labor Commissioner’s jurisdiction over all wage claims filed under section 98 et seq.  We do not read Preston so broadly.

That did not save the employee's action, however. Sonic also contended that the record failed to show that the Berman waiver was unenforceable for public policy reasons under Armendariz or Gentry. On this dispositive point, the Court of Appeal agreed.

As we previously stated, however, Moreno has failed to persuade us that enforcing the Berman waiver in this case would deprive him of rights that are necessary to the vindication of a statutory wage claim.  Moreover, the 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.

Exactly what sort of evidence the court would have found persuasive is left to one's imagination.

You can download the full text of Sonic-Calabasas A, Inc. here in Word or PDF.


Miles Locker

A petition for review was filed on July 8, 2009.

Miles Locker

Review was granted. These are the issues specified by the California Supreme Court: (1) Can a mandatory employment arbitration agreement be enforced prior to the conclusion of an administrative proceeding conducted by the Labor Commissioner concerning an employee's statutory wage claim? (2) Was the Labor Commissioner's jurisdiction over employee's statutory wage claim divested by the Federal Arbitration Act under Preston v. Ferrer (2008) __ U.S. __, 128 S.Ct. 978, 169 L.Ed.2d 917

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