California Court Orders Arbitration of Administrative Wage Claim
This week, a California Court of Appeal confirmed that employment arbitration agreements require arbitration not only of employment claims filed in court but also of administrative wage claims filed before the Department of Labor Standards Enforcement (“DLSE”). Employers may recall that in 2013, the California Supreme Court held (after effectively being directed to do so by the U.S. Supreme Court) in Sonic-Calabasas v. Moreno that there is no blanket exemption for wage claims from an otherwise enforceable arbitration agreement, and that employees are not necessarily entitled to have their wage claims adjudicated in an administrative hearing (known as a “Berman hearing”) before the DLSE. However, the California Supreme Court left some wiggle room in its opinion by qualifying it to say that if an arbitration agreement provides an “affordable and accessible” alternative forum for resolution of the wage claim, then the agreement is enforceable and applies to require the wage claim to be arbitrated. Because of this wiggle room, lawyers continue to litigate the issue of whether administrative wage claims are subject to arbitration. In Oto, LLC v. Kho, the court held that the answer is yes.
In Oto, the plaintiff-employee filed a wage claim with the DLSE. The employer attended a settlement conference before the DLSE and attempted to settle the claim, but no settlement was reached. As such, the claim was set for a hearing (to decide the merits of the claim) before the DLSE. Just before the hearing (the same day), the employer filed a petition to compel arbitration of the claim with the Superior Court. An employer representative showed up at the hearing and asked that it be cancelled based on the pending petition to compel arbitration. The DLSE hearing officer refused to cancel the hearing and proceeded without the employer being present. Unsurprisingly, the DLSE ruled in favor of the employee and awarded six figures to the employee. The employer appealed the award. Meanwhile, the Superior Court denied the employer’s petition to compel arbitration, finding the applicable arbitration agreement unconscionable and unenforceable. The employer appealed.
This week, the Court of Appeal issued its opinion agreeing with the employer that the arbitration agreement was enforceable and that the Superior Court erred in refusing to grant the employer’s petition to compel arbitration. The court applied Sonic-Calabasas and held that under that case, the arbitration agreement should have been enforced as long as it provided an “affordable and accessible” alternative forum (arbitration) for resolving the employee’s wage claim. The Labor Commissioner’s office, which appeared on the employee’s behalf, argued that the agreement did not provide an affordable or accessible forum and was thereby unconscionable. The Labor Commissioner primarily argued that the agreement did not expressly say that the employer would bear the cost of the arbitration or that the employee could recover attorneys’ fees if he prevailed on his claims in arbitration. Because of this, the Labor Commissioner argued that the employee arguably would have to pay for half of the arbitration and would have to pay for an attorney. (The Labor Commissioner argued that it would not be practical for an employee to represent himself in arbitration, as he could in an informal DLSE hearing). The court rejected these arguments because the arbitration agreement held that the claims would be decided under applicable law – which the employer conceded meant that it would have to bear the costs of the arbitration and that a prevailing employee on a wage claim could be awarded attorneys’ fees.
The full decision is here. This is a positive development for employers fighting to enforce their employment arbitration agreements where wage claims are involved. However, it also serves to put employers on notice that the Labor Commissioner’s office may not cooperate in recognizing the validity of the arbitration agreement in the first instance.