Seyfarth Synopsis. Pending California legislation would make a mandatory arbitration agreement an unlawful practice under the Fair Employment and Housing Act, and a crime. How could that be consistent with the Federal Arbitration Act?

Under current law, California businesses can insist that employees and contractors enter valid agreements to resolve disputes in front of a neutral arbitrator instead of a judge and jury. These agreements also may waive employee participation in class actions.

California is a repeat offender in making unconstitutional attacks on arbitration agreements. The FAA declares that arbitration agreements are entitled to judicial enforcement to the same extent that contracts generally are. Because federal law thus protects arbitration agreements from discrimination, state laws hostile to arbitration are preempted under the U.S. Constitution’s Supremacy Clause.

Yet California officials have continued to defy this constitutional reality. On no fewer than five occasions the United States Supreme Court has found it necessary to strike down California statutes or judicial decisions that have discriminated against arbitration agreements. California lawmakers nonetheless remain hostile to these agreements and—like Don Quixote tilting at windmills—continue to sally forth against an invincible foe.

The latest quixotic effort comes in the form of Assembly Bill 3080, sponsored by Assembly Member Lorena Gonzalez Fletcher. AB 3080 would forbid businesses to require arbitration in any agreement with an employee or independent contractor entered into on or after January 1, 2019. The bill would prohibit even those agreements that permit an individual to opt out. And the bill has bite: it would amend the FEHA to authorize discrimination lawsuits against businesses that require arbitration agreements, and it would place its substantive provisions within an article of the Labor Code that subjects any violator to criminal prosecution.

Now, we know what you’re thinking: how could such a measure possibly pass constitutional muster, and isn’t the bill so ridiculous that it would never pass in the first place? Take the second question first: Assembly Member Gonzalez Fletcher has repeatedly authored bills that have become law over strenuous objections of the California Chamber of Commerce. Her legislative track record is impressive. And her colleagues in Sacramento are not known for rebuffing the entreaties of the plaintiffs’ bar—who have never much liked arbitration.

As to the federal constitutional issue, however, your question is powerful, as the defenses offered for AB 3080 are unsound. The first defense is that the bill would affect only mandatory agreements (though the bill, in an Orwellian twist, would consider an agreement mandatory even if it provides for an opportunity to opt out of it). This defense ignores the point that courts routinely have invoked the FAA to protect arbitration agreements imposed as a condition of employment. Contracts presented on a take-it-or-leave-it basis—and accepted either formally or through continued employment—are fully enforceable so long as they are not unreasonably one-sided, and arbitration agreements can meet that test. FAA preemption thus applies regardless of whether the arbitration agreement is called “mandatory” or “voluntary.”

The second defense of AB 3080 is likewise disingenuous. This defense notes that AB 3080 does not expressly declare arbitration agreements unenforceable, and suggests that judicial enforceability really is all that the FAA is about. And, this defense continues, “What would be the harm of the new law, anyway? Couldn’t we just wait to see how a court rules on it?”

This defense disregards Supreme Court teaching, which holds that the FAA preempts any state law that “stands as an obstacle” to enforcing arbitration agreements. (It was this rationale that the Supreme Court invoked to foil California’s attempt to ban class-action waivers in arbitration agreements.) AB 3080 would threaten to turn employers into criminals—and to subject them to discrimination lawsuits—merely for making arbitration a condition of employment. How could creating that in terrorem effect for businesses not be creating an obstacle to enforcement of arbitration agreements?

And why should a business be required to risk criminal sanctions or a lawsuit, or both, if it wants to insist that employees and independent contractors agree to a fair form of dispute resolution that is cheaper and quicker than formal litigation?

One might think that persons threatened by encroachments upon their federally protected rights would have the full-throated support of the entire legal community. But not so here, even though AB 3080 would create for California businesses the prospect of civil and criminal actions that would chill the exercise of a federally guaranteed freedom to contract. The constitutional demise of AB 3080—should it become law—is inevitable, once the matter reaches a court. But would the new law’s threats to contracting businesses so discourage arbitration agreements that the issue never gets there?

Perhaps it’s too soon to fret. Recall that Governor Brown, in 2015, vetoed a bill that would have made California the first state to ban arbitration agreements imposed as a condition of employment. He noted that employees in arbitrations enjoy “numerous protections” and that the Legislature’s “far-reaching approach” was one of the sort that courts had struck down in other jurisdictions. He also wanted to await the wisdom of arbitration cases then pending before the United States Supreme Court.

Events since 2015 have only confirmed the view that state laws discriminating against arbitration agreements are unconstitutional. It remains to be seen whether Governor Brown, if presented with a passed version of AB 3080, will use his veto again or will instead leave the defense of mandatory arbitration agreements in the hands of California businesses that are principled and hardy enough to risk civil and criminal sanctions while defending their federal right to contract.

Seyfarth Synopsis: California courts are often hostile towards defendants that seek to require litigious employees to honor their arbitration agreements. The defendant’s plight might seem more stark still if the defendant has not itself signed the agreement. But defendant employers still have means of enforcing such agreements, which can be especially significant in class actions claiming joint employment. 

Despite the strong federal policy favoring arbitration, it is no secret that enforcing arbitration agreements in California can be tough. The task is tougher yet for the defendant that finds itself being sued by someone with whom the defendant has never had a contractual relationship, although she has signed an employment arbitration agreement with a co-defendant. This is because, under the general rule, one must be a party to an arbitration agreement in order to invoke it.

With recent waves of litigation seeking to expand the scope of joint employment, the issue of enforcing arbitration agreements on behalf of nonsignatories has become increasingly important. One typical situation involves a staffing company being sued by an employee who, looking for a deeper pocket, also sues the staffing company’s client. In another typical situation, a franchisee’s employee sues both the franchisee and the franchisor. Suppose, in both situations, the employer and the employee have agreed to arbitrate any claims between them. But in both situations, the upstream defendant (in our situations, the client or the franchisor) has never had a chance to negotiate an arbitration agreement with the plaintiff, as the plaintiff and the upstream defendant have never had any contractual relationship at all. In those cases, the upstream defendant experiences the worst of both worlds: it is being sued as the plaintiff’s “employer” and yet, not really being the plaintiff’s employer, the upstream defendant has never had the chance to implement an arbitration agreement with the plaintiff.

As it turns out, there is hope for enforcing the arbitration agreement on behalf of the upstream defendant in these situations, even though it never signed the agreement. There are three exceptions to the nonsignatory rule. Application of the first two can depend on how the claim is pleaded. Application of the third is relatively sure, if the upstream defendant plans properly to assure itself that the arbitration agreement in place is adequate. We discuss each of the three exceptions below.

Agency

Nonsignatories may enforce an arbitration agreement under an agency theory. If the plaintiff claims that a defendant acted as the agent of a party to an arbitration agreement, then the non-party defendant may enforce the agreement. This claim often arises where the plaintiff alleges that the non-signatory defendant was a joint employer. Earlier this year, a California appellate case upheld the enforcement of an arbitration agreement under this very theory. Employers seeking to avail themselves of this theory should carefully evaluate the allegations in the complaint against them. If they meet these standards, then asserting an agency theory may be a successful way to enforce the agreement.

Equitable Estoppel

A lesser known exception available to nonsignatories seeking to enforce an arbitration agreement is equitable estoppel: a nonsignatory defendant can compel the signatory plaintiff into arbitration when the claims against the nonsignatory are “intimately founded and inextricably intertwined” with the underlying contract obligations. Equitable estoppel applies when the claims are based on the same facts and inherently inseparable from the arbitrable claims against the signatory defendant. A California court recently acknowledged this theory in the employment context, particularly because the plaintiff made no effort to distinguish between his claims against his employer (the signatory) and the non-signatory defendant.

Again, when considering raising this argument, it is important to carefully analyze the allegations in the complaint. Should they be the same against all defendants, equitable estoppel may be an option for enforcing the agreement.

Third Party Beneficiary

While the first two ways for a nonsignatory to enforce an arbitration agreement may depend on how the plaintiff pleads the case, a more certain basis for enforcement exists where the language of the arbitration agreement clearly expresses an intent to allow nonsignatories to enforce it. The intent to thus benefit a third party can appear even if the agreement does not specifically identify the third party by name. It would be enough if the third party belongs to the class of clearly identified beneficiaries.

The third-party beneficiary exception places a premium on the adequacy of the arbitration agreement’s language. The employer that signed the agreement—the staffing agency, for example, or the franchisee—will have every incentive, as a good corporate citizen, to see that its arbitration agreement benefits not just itself but also potential upstream defendants, such as the staffing agency’s client or the franchisee’s franchisor. And the potential upstream defendant, of course, will be more inclined to deal with a potential joint employer if that employer has in place an adequate arbitration agreement that properly addresses issues of enforcement and that provides, where appropriate, for waiver of class or collective or representative arbitration.

Navigating issues enforcing arbitration agreements in California can be complicated. If you would like assistance in drafting an agreement or help enforcing an agreement in the defense of a lawsuit, please contact one of Seyfarth Shaw’s attorneys.

Seyfarth Synopsis: On September 25 (yes, a Sunday), Governor Brown signed into law Senate Bill 1241. SB 1241, effective January 1, 2017, adds Section 925 to the Labor Code to restrain the ability of employers to require employees to litigate or arbitrate employment disputes (1) outside of California or (2) under the laws of another state. The only exception is where the employee was individually represented by a lawyer in negotiating an employment contract.

For companies that have headquarters outside of California and that employ people who work and reside in California, this assault on the freedom of contract is not welcome news.

Existing Law and the Genesis of SB 1241

Companies have long used forum-selection clauses and choice-of-law provisions in an effort to avoid California courts apply California law to employment disputes, especially those involving unfair competition. SB 1241 generally invalidates these provisions.

There often are legitimate reasons to have employment disputes decided where the company primarily does its business. Companies may prefer a court in their own state to decide which law (California’s or some other state’s) will govern a dispute. Under the common law, courts apply “substantial relationship” and “contrary to a fundamental policy of a state” tests to see if California law or some other law should govern a particular case.

Courts have long held that the freedom to contract favors the enforcement of forum-selection clauses. The U.S. Supreme Court in 2013 reinforced this rule in Atlantic Marine Constr. Co. Although not an employment case, Atlantic Marine broadly endorsed forum-selection clauses, stating that “courts should not unnecessarily disrupt the parties’ settled expectations” and that usually “ ‘the interest of justice’ is served by holding parties to their bargain.” Since that time, federal district courts in California have increasingly given more weight to forum-selection clauses.

What SB 1241 Provides

As we reported earlier, SB 1241 was among various employment-related bills that went to the Governor at the end of August 2016. SB 1241, the full text of which appears here, will be enacted as Labor Code section 925. It applies to employment contracts entered into, modified, or extended on or after January 1, 2017.

The key provision of Section 925 is its first section:

(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

(1) Require the employee to adjudicate outside of California a claim arising in California.

(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

A key exception to the application of Section 925 appears in subdivision (e):

(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.

Thus, Section 925 generally forbids employers to require California employees to adjudicate claims outside of California or to submit to the laws of another state. An employee who successfully sues to void such offending provisions can recover reasonable attorney’s fees. Lab. Code § 925(e).

History of Labor Code Section 925

Section 925 represents a direct response to work-arounds that some employers have developed in attempts to dodge peculiar California law, such as California’s prohibition of covenants not to compete. (See Bus. & Prof. Code § 16600.)

Section 925 follows Governor Brown’s refusal to sign Assembly Bill 465. As we wrote earlier, AB 465 attempted to ban mandatory employment arbitration agreements. Governor Brown’s veto message explained that purported employment abuses “should be specified and solved by targeted legislation, not a blanket prohibition.” Section 925 is one such piece of targeted legislation, attacking contractual provisions that are hostile to California law, whether they appear in an arbitration clause or elsewhere within an employment agreement.

What Labor Code Section 925 Does and Does Not Do

Under prior law, a party seeking to enforce a forum-selection clause in an employment agreement already faced an uphill battle: it had to “prove that enforcement of the forum selection clause would not result in a significant diminution of rights.” Indeed, the Court of Appeal has refused to enforce an employer’s forum-selection clause and related choice-of-law clause because they violated California public policy on employee compensation. Section 925 changes the employer’s battle from difficult to hopeless: clauses that once were simply presumptively unenforceable will now be categorically unenforceable, except for clauses negotiated with an employee “individually represented by legal counsel.”

Although Section 925 apparently is a reaction to Governor Brown’s October 2015 veto of legislation that would have banned mandatory employment arbitration agreements, Section 925 applies to all employment contracts, regardless of whether they contain arbitration clauses. Section 925 affects arbitration clauses by ensuring that employment arbitrations with California residents generally will occur in California and apply California law. Arbitration clauses that contain forum-selection or choice-of-law provisions that offend Section 925 will be to that extent contrary to public policy, an outcome that would make enforcement of the overall arbitration agreement more difficult.

Section 925 does not affect employment agreements already in effect. By its terms, the law applies only to contracts entered into, modified, or extended on or after January 1, 2017.

Open Questions (or Things Left to Litigate)

Section 925 does not define what it means for an employee to “primarily reside[] and work[] in California.” Nor does it specify what qualifies as a “substantive protection of California law” that it seeks to protect.

Although the term “primarily” is vague, it often will not be difficult to determine whether an employee primarily resides and works in California. More difficult would be determining whether applying the law of another state would “[d]eprive the employee of the substantive protection of California law.” Some California courts have recognized that choice-of-law provisions are enforceable where the substantive law of the selected state provides the same or similar protections as California.

On October 11—his very last day to sign or veto bills—Governor Brown vetoed the much-feared Assembly Bill 465. AB 465 would have banned mandatory agreements to arbitrate Labor Code claims as a condition of employment. At least for now, employers with such arbitration programs can breathe a sigh of relief. We previously reported about AB 465 in more detail here.

Not only did Governor Brown veto the bill, he sent a strong, thoughtful message explaining the reasons for his decision.

Brown observed:

  1. The bill was far-reaching as it would make California the only state in the country to have such a prohibition.
  2. Existing California law already has protections addressing the issue of unfairness in employment arbitration agreements—as the bill’s opponents had pointed out (thank you Armendariz).
  3. The bill’s provisions likely violated the Federal Arbitration Act (“FAA”), as recent California and U.S. Supreme Court decisions have invalidated state policies that unduly impede arbitration—as the bill’s opponents also pointed out (thank you Concepcion).

As to the last point, Brown expressed concern that enacting such broad legislation would surely result in years of costly litigation and legal uncertainty—yes, he actually said that. Brown supported that concern by noting that the U.S. Supreme Court is already considering two cases arising out of California law that involve preemption of state policies under the FAA. Before signing an anti-arbitration bill, Brown wanted to see the outcome of those cases.

And with good reason! Several employer groups, anticipating the bill’s passage, had already been considering bringing legal challenges under the FAA. That fight will now have to await another day.

Notably, Brown did not foreclose the possibility of signing more pointed legislation in the future. He expressed concerns about fairness in employment disputes and noted that there is conflicting evidence about whether arbitration is fair to employees.

For now, employers can relax. But bills such as this are like those zombies on October 31: we can expect them to rise from the dead and haunt future legislative sessions.

Tearing contract sheetOn August 31, the California Legislature passed AB 465, aiming to “ensure that a contract to waive any of the rights, penalties, remedies, forums, or procedures under the Labor Code”—such as an arbitration agreement—is “a matter of voluntary consent.” This bill, now before Governor Brown for his approval, raises two big questions: (1) will the Governor sign the bill, and, if he does, (2) to what extent would the new law be enforceable?

The proposed bill would add Section 925 to the California Labor Code, to

  • prohibit companies from conditioning employment offers (or renewals) on the waiver of any Labor Code-related right,
  • require that any waiver of Labor Code protections be knowing, voluntary, and in writing,
  • deem any waiver of Labor Code rights conditioned on employment to be “involuntary, unconscionable, against public policy, and unenforceable,”
  • prohibit retaliation against any person who refuses to waive Labor Code-related rights, and
  • authorize attorneys’ fees recovery for a plaintiff who enforces rights under Section 925.

The bill would not affect the enforceability of other provisions in an agreement that contains an unenforceable arbitration provision. And it would not apply to employees who are represented by counsel in negotiating the terms of such an agreement.

What? Why? How?

You wonder why this legislation is necessary (um, Armendariz)? Or how it is legal (FAA, anyone)? You’re not alone. While the bill’s supporters call it essential for worker protection, its opponents call it unnecessary, unenforceable, and counterproductive.

The bill’s author, Assembly Member Roger Hernández (D-West Covina), introduced the bill with this explanation: “No worker should be forced to choose between a job and giving up core labor rights and procedures. Existing labor laws are meaningless if workers are forced to sign away enforcement of those rights.”

Opponents, including the California Chamber of Commerce, say the bill is unnecessary in light of current law, unenforceable as preempted by the Federal Arbitration Act, and counterproductive because, as a matter of public policy, arbitration is a fair, low-cost avenue to resolve labor disputes: “AB 465 will only serve to increase litigation costs of individual claims, representative actions and class action lawsuits against California employers of all sizes until such legislation can work through the judicial process to be challenged once again.”

Hardly a Boon to Employees

The law hardly seems essential to workers’ rights. Current California law on mandatory, pre-dispute, arbitration agreements already provides these safeguards:

  • a neutral arbitrator, who is to make a written award subject to judicial review,
  • allowance of adequate discovery,
  • the remedies that would be available in court, and
  • the employee relieved of any obligation to pay any more costs than what the employee would have to pay in court.

Nor have proponents of AB 465 shown that arbitration subjects employees to worse outcomes. The bill’s opponents, meanwhile, have pointed to studies showing that arbitration offers better outcomes for employees in less time than traditional litigation.

A cynic might wonder, then, if the bill primarily serves the interests of trial lawyers.

A Textbook Case of Conflict Preemption?

Should the Governor approve AB 465, new Labor Code section 925 would face judicial challenges on preemption grounds. The Federal Arbitration Act declares that contractual agreements to arbitrate disputes are “valid, irrevocable, and enforceable.” And the U.S. Supreme Court has often reminded California about the pesky Supremacy Clause, while invoking the FAA to trump California rules that were hostile to arbitration.

In fact, one anti-arbitration rule the Supreme Court has struck down appears in a predecessor of AB 465—Labor Code section 229. Section 229 purports to invalidate arbitration agreements involving wage claims. After the Supreme Court’s 1987 ruling that the FAA preempts Section 229, that section is now a nullity except in that rare case in which the arbitration agreement does not involve transactions affecting interstate commerce.

The language of AB 465 directly contradicts Supreme Court pronouncements on FAA preemption: the bill (1) would outlaw mandatory agreements to arbitrate Labor Code claims, such as wage and hour disputes, unless that agreement is negotiated by the employee’s attorney, and (2) states that all mandatory agreements to arbitrate Labor Code claims are “unconscionable, against public policy, and unenforceable.” It’s like the Legislature has already written the preemption decision for the Court!

Workplace Solutions

AB 465 is just one step away from becoming California law. Should Governor Brown sign it, its validity will almost certainly be challenged. But with this bill closer to reality, employers should consider its potential implications on their arbitration programs, especially if they are made a condition of employment (as many are).

With that in mind, it is worth pondering:

  • Since AB 465 requires the employer to prove that the employee entered into the arbitration agreement “knowingly and voluntarily,” and that it was not a condition of employment, can the employer establish that proof simply by including a recital that the parties are voluntarily waiving the right to sue in court, and that this waiver is not a condition of employment?
  • Must the employer offer additional consideration to ensure that the arbitration agreement is truly voluntary?
  • Must employers reconsider the methods by which employees enter into arbitration agreements altogether? Is including arbitration agreements in handbooks now completely dead? Is there anything that would make clear that the employee has read and agreed to the arbitration terms?
  • What other policies, e.g., electronic signatures, opt-out methods, etc. can be used to most effectively ensure that employers can make a strong case for knowing and voluntary waiver?

If you are struggling with finding answers to these or other questions, we encourage you to consult a friendly Seyfarth attorney near you.

Edited by Julie Yap

HiResIn this season of family road trips and every parent’s favorite question from the back seat—“are we there yet?”—California employers on the road to arbitration recently received some good directions from the Supreme Court. As explained here by our very own Pam Vartabedian, the California Supreme Court recently smoothed over some bumps in that road, holding that reasonably balanced arbitration agreements are enforceable even if they look like a “simple, old-fashioned, bad bargain.”  With this guidance, more California employers with an arbitration destination in mind may eventually get there yet.

By Christopher Crosman

Navigating the shoals of California law on arbitration agreements has been exceedingly difficult.  The California Supreme Court has maintained a long tradition of general antipathy to mandatory arbitration, and has been particularly hostile to arbitration agreements that limit a plaintiff’s ability to pursue a class action.  For example, Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), invalidated class action arbitration waivers contained in consumer contracts, and Gentry v. Superior Court, 42 Cal. 4th 443 (2007), set forth a stringent test for determining whether class action waivers should be upheld in the employment context. 

So does that mean not to bother with class action waivers in California?  That remains unclear.  The U.S. Supreme Court held in AT&T Mobility LLC v. Concepcion that the Federal Arbitration Act (FAA) preempts any state law that burdens the right of the parties to agree to arbitrate.  Concepcion overruled Discover Bank, but did not specifically address Gentry. Whether Gentry was also overruled by Concepcion is one of the issues currently before the California Supreme Court in the Iskanian case, discussed below. 

This year, the California high court spoke again on the subject of enforcement of arbitration agreements. In Sonic-Calabasas A, Inc. v. Moreno (No. S17445, Oct. 17, 2013), the high court reminded us that, even after Concepcion, arbitration clauses may be invalidated if they are unconscionable, and suggested that the same facts a court might have cited before to argue that state public policy invalidates an arbitration agreement might still be cited to argue that the agreement is unconscionable, without running afoul of the FAA.  (Sonic-Calabasas and its shadow-boxing with Concepcion is discussed in more detail here.)

Have state courts clarified the issue?  Nope.  The California Court of Appeal has hopped on the confusion bandwagon by issuing inconsistent rulings concerning the arbitrability of representative claims brought under the Labor Code Private Attorneys General Act (“PAGA”).  In Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011), a Court of Appeal ruled that PAGA claims are not subject to arbitration, in that the FAA governs only private arbitration, while PAGA claims are brought on behalf of state labor law enforcement agencies, with the plaintiff acting as the state’s “proxy or agent.” But then in Iskanian v. CLS Transportation Los Angeles, 206 Cal. App. 4th 949 (2012), review granted, another division of the Court of Appeal held that the FAA, as interpreted Concepcion, does apply to representative PAGA claims, and preempts any state law rule that would invalidate an otherwise valid arbitration agreement. Unfortunately for employers, the California Supreme Court has granted review in Iskanian, but has declined to review Brown.

My head hurts and I’m back to square one with no enforceable class action waiver, right?  Don’t toss that waiver in the trash just yet.  One California Court of Appeal, not content to wait for the California Supreme Court’s ruling in Iskanian, has tackled the PAGA question itself in Goss v. Ross Stores (No. A133895, October 31, 2013)In this (unfortunately) unpublished opinion, the court held that Concepcion does indeed apply to representative PAGA claims, and  overturned the trial court’s holding that such a waiver was unenforceable under Brown.  In doing so, the Goss court rejected Brown’s reasoning as being incompatible with Concepcion.  The Goss court also decided that the plaintiff’s claims for injunctive relief under the California Unfair Competition law were likewise subject to arbitration.  In doing so, the Goss court rejected the trial court’s reliance on Cruz v. PacificCare Health Systems, Inc., 30 Cal. 4th 303 (2003) (holding UCL claims not arbitrable because they were brought to prevent harm to the public), asserting that Cruz was invalidated by Concepcion, as recognized in Nelson v. Legacy Partners Residential, Inc., 207 Cal. App. 4th 1115 (2012).

Goss, though unpublished, signals that the very muddy tide is turning in favor of employers in regard to enforcement of class action arbitration waivers. While the California Supreme Court continues to push back against Concepcion, and may do so again when it releases its decision in Iskanian, it has been forced to do so on narrower and narrower grounds. 

Workplace Solutions:  Class action waivers in the employment arena remain potentially viable, although obstacles to clear sailing remain (including the unresolved issues raised by the NLRB in the D.R. Horton case, 357 NLRB No. 184). Under the guidance of the U.S. Supreme Court, one can look forward to the day when properly crafted arbitration agreements containing class action waivers will be generally enforceable in California.  In the meantime, employers utilizing mandatory arbitration agreements should consult with their counsel regularly to ensure these agreements are up to date and reflect the latest developments in the law.

By Jeff Berman, David Kadue and Colleen Regan

Continuing to push back against the federal policy in favor of arbitration contained in the Federal Arbitration Act, the California Supreme Court has handed down its long-awaited decision in Sonic-Calabasas, Inc. v. Moreno.  A copy of the decision can be accessed here

The California Supreme Court had earlier ruled that an employer cannot require employees to arbitrate disputes while waiving their right to a “Berman hearing” (an administrative proceeding to settle wage disputes). In today’s decision, responding to instructions from the U.S. Supreme Court, the California Court acknowledges that the FAA preempts its earlier ruling. But now a majority of the Court holds that state courts can continue to invalidate arbitration agreements under unconscionability rules that do not interfere with “fundamental attributes of arbitration.” The Court has thus remanded the case to the trial court to determine whether the arbitration agreement in this case was otherwise so unconscionable as to be unenforceable. Justice Chin, joined by Justice Baxter, has written a strong dissent that effectively invites the U.S. Supreme Court to revisit the work of the California Supreme Court.

A Seyfarth One Minute Memo analyzing the 104-page decision will be distributed and posted on this blog shortly.