On October 17, the California Supreme Court issued its opinion in Sonic-Calabasas v. Moreno, holding that an employment arbitration agreement is enforceable even where an employee is pursuing administrative remedies (typically for alleged unpaid wages) through the California Labor Commissioner.
The California Supreme Court had previously held in this same case that an arbitration agreement is unconscionable to the extent it seeks to preclude an administrative hearing before the Labor Commissioner. Following that ruling, however, the United States Supreme Court issued its decision in AT&T Mobility v. Concepcion [an enhanced version of this opinion is available to lexis.com subscribers], striking down a similar California Supreme Court ruling that had found class action waivers is consumer contracts generally unconscionable and unenforceable. The United States Supreme Court thereafter ordered the California Supreme Court to reconsider its ruling in Sonic-Calabasas in light of Concepcion.
Today the California Supreme Court issued its new decision in "Sonic II." The Court held that Concepcion precludes a finding that an arbitration agreement is unconscionable simply because it requires parties to arbitrate a Labor Code dispute instead of permitting the employee to first proceed with an administrative hearing before the Labor Commissioner. Thus, an arbitration agreement now may still be enforced even in Labor Commissioner proceedings and require the parties to arbitrate their dispute. However, the California Supreme Court held that while there is no categorical unconscionability rule for arbitration agreements that preclude an administrative hearing before the Labor Commissioner, an arbitration agreement can still be deemed unenforceable if determined to be procedurally and substantively unconscionable (based on unfair terms above and beyond precluding an administrative hearing). The Court stated: "As with any contract, the unconscionability inquiry requires a court to examine the totality of the agreement's substantive terms as well as the circumstances of its formation to determine whether the overall bargain was unreasonably one-sided." The Court further stated that the agreement "must provide an employee with an accessible and affordable arbitral forum for resolving wage disputes." The Court basically held that the unconscionability standards it long ago set forth in Armendariz remain good law even after Concepcion.
The Court held that it did not have sufficient information to rule on the unconscionability issue as to the arbitration agreement between Moreno and Sonic-Calabasas. It therefore remanded the issue to the trial court to determine. The Court provided guidance to trial courts to assist in making unconscionability determinations, characterizing the inquiry as a detailed factual inquiry that still permits the court to consider (among other factors) the effect of the waiver of certain benefits of an administrative proceeding before the Labor Commissioner. The Court's opinion basically precludes a bright line rule on when an arbitration agreement will be deemed unconscionable and instead ensures that trial courts will continue to come out all over the map on these issues.
Justice Chin, joined by Justice Baxter, authored a vigorous dissent in which he criticized the majority's unconscionability analysis and stated that the Court's analysis contravenes Concepcion.
The full 100-plus page opinion is available here [enhanced version].
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