Feb. 24 2011

California Supreme Court: Arbitration Agreement Cannot Preclude Administrative Proceedings for Unpaid Wages

Topics: Arbitration Agreements, Court Decisions

The California Supreme Court ruled today that employment arbitration agreements cannot be used to preclude an employee from seeking administrative relief from the Department of Labor Standards Enforcement for claims for unpaid wages. The Court held that such a preclusion would violate California law and is, therefore, unconscionable. Notably, the Court also held that this unconscionability determination is not preempted by the Federal Arbitration Act ("FAA").The case is Sonic-Calabasas A, Inc.v. Moreno and the decision is here.

Plaintiff Moreno is a former employee of Sonic-Calabasas. As a condition of employment, Moreno signed an agreement requiring him to arbitrate any and all disputes arising out of the employment relationship. The agreement exempted administrative proceedings before the EEOC/DFEH, but was silent as to administrative claims for unpaid wages. After Moreno's employment ended, he filed a claim for alleged unpaid vacation wages with California's Department of Labor Standards Enforcement ("DLSE"). Sonic-Calabasas filed a motion to compel arbitration, arguing that the arbitration agreement Moreno had signed required arbitration of the dispute.

The California Supreme Court ruled today thatan arbitration agreement, even if otherwise enforceable, cannotbe used toprevent an employee from pursuing administrative relief forunpaidwages through the DLSE. Thus,employees are entitledto an administrative hearing through the DLSEto resolve claims for unpaid wages. However, the Court held thatin the event of an appealof the DLSE's decision (following the administrative hearing), that appeal can be compelled to arbitration pursuant to avalid and enforceable arbitration agreement.

TheSupreme Court also addressed and rejected the employer's argument that the FAA preempts California law and requires enforcement of the arbitration agreement inthis context.In a lengthydiscussion, the Court reasoned that its holding simply promoted "delaying" arbitrationpending exhaustionof administrative remedies; it did not disfavorarbitration entirely. Stay tuned on theFAA preemption issue as the United States Supreme Court is expected to soonissue a decision on this issue in AT&T Mobility v. Concepcion. In that case, the Ninth Circuitruled that a class action waiver in an arbitration agreement was unconscionable and unenforceable under Californialaw. The issue before theSupreme Court is now whether the FAA preemptsstate law unconscionability standardsthat thwart thepurpose of the FAA.

We will continue to post developments on thisimportant topic.

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For over 20 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent represents employers, including major food and retail companies, in all types of employment litigation: wrongful termination, retaliation, breach of contract, wage and hour (California Labor Code) and unfair competition. She also regularly counsels and advises California employers on issues of compliance with California and federal employment laws.
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