Under Labor Code section 98 et seq., an employee with a claim for unpaid wages has a right to seek an informal hearing in front of the
In this case, we must decide whether a provision in an arbitration agreement that the employee enters as a condition of employment requiring waiver of the option of a Berman hearing is contrary to public policy and unconscionable. We conclude that it is, and therefore reverse the Court of Appeal's contrary judgment. We nonetheless conclude that arbitration agreements may be enforced after a Berman hearing has taken place, i.e., the appeal from such a hearing may be made, pursuant to a valid arbitration agreement, in front of an arbitrator rather than in court.
Furthermore, we must decide whether a state law rule that a Berman waiver in an arbitration agreement is unconscionable and contrary to public policy is preempted by the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). In arguing this issue, the parties particularly focus on a recent United States Supreme Court case, Preston v. Ferrer (2008) 552 U.S. 346 [169 L.Ed.2d 917, 128 S.Ct. 978] (Preston), holding that a provision in this state's Talent Agencies Act vesting original jurisdiction of all disputes under that statute with the Labor Commissioner was preempted by the FAA. We conclude, as did the Court of Appeal below, that Preston is distinguishable and that our holding is not preempted by the FAA.
The facts are not in dispute. Frank Moreno is a former employee of Sonic-Calabasas A, Inc. (Sonic), which owns and operates an automobile dealership. As a condition of his employment with Sonic, Moreno signed a document entitled "Applicant's Statement & Agreement." The agreement set forth a number of conditions of employment, including consent to drug testing and permission to contact former employers, as well as a provision making the employment at will. Critically for our case, the agreement contained a paragraph governing dispute resolution. The agreement required both parties to submit their employment disputes to "binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration
At some point, Moreno left his position with Sonic. In December 2006, Moreno filed an administrative wage claim with the Labor Commissioner for unpaid vacation pay pursuant to Labor Code section 98 et seq.
In February 2007, Sonic petitioned the superior court to compel arbitration of the wage claim and dismiss the pending administrative action. (Code Civ. Proc., § 1281.2.) Sonic argued Moreno waived his right to a Berman hearing in the arbitration agreement.
The Labor Commissioner intervened below on Moreno's behalf (§ 98.5), and Moreno adopted the Labor Commissioner's arguments. The Labor Commissioner argued that the arbitration agreement, properly construed, did not preclude Moreno from filing an administrative wage claim under section 98 et seq. The Labor Commissioner argued that resort to a Berman hearing was compatible with the arbitration agreement, because the hearing could be followed by arbitration in lieu of a de novo appeal to the superior court that is provided in section 98.2, subdivision (a). The Labor Commissioner contended that a contrary interpretation of the arbitration agreement to waive a Berman hearing would violate public policy, relying on our decision regarding mandatory employment arbitration agreements in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 [99 Cal.Rptr.2d 745, 6 P.3d 669] (Armendariz).
The superior court denied the petition to compel arbitration as premature. Citing Armendariz, the superior court stated that, as a matter of "basic public policy . . . until there has been the preliminary non-binding hearing and
Sonic appealed from the order of denial. (Code Civ. Proc., § 1294, subd. (a).) The Labor Commissioner did not participate in the appeal, nor in proceedings before this court. During the briefing period, the United States Supreme Court decided Preston, which held that the Labor Commissioner's original and exclusive jurisdiction under the Talent Agencies Act (Lab. Code, § 1700 et seq.) was preempted when the parties entered into an arbitration agreement governed by the FAA. (Preston, supra, 552 U.S. 346.)
The Court of Appeal concluded at the threshold that Preston was not dispositive of the appeal, reasoning that Preston applied to cases in which a party was challenging the validity of a contract as a whole and seeking to have that challenge adjudicated by an administrative agency; it did not apply to cases in which the party was challenging the arbitration clause itself as unconscionable. The Court of Appeal further concluded that the arbitration agreement, correctly interpreted, constituted a waiver of a Berman hearing. By its terms, the agreement precluded Moreno from pursuing any judicial "or other government dispute resolution forum," subject to certain enumerated exceptions. "Given that neither the Division of Labor Standards Enforcement nor the Labor Commissioner was listed among the stated exceptions, we conclude, as a matter of law, that Moreno was barred from pursuing an administrative wage claim under section 98 et seq."
The Court of Appeal then concluded, for reasons explained below, that a Berman waiver was not contrary to public policy. Moreno petitioned for review, contending the Court of Appeal decided this question incorrectly. Sonic, in its answer to the petition, contended the Court of Appeal was correct, and renewed its argument that a holding invalidating a Berman waiver would be preempted by the FAA, as construed in Preston. We granted review to decide these questions.
We note that the Labor Commissioner, who intervened in this case at the trial court level, did not contend that arbitration and Berman hearings are incompatible, or that the present arbitration agreement could not be enforced, but only that "the arbitration agreement should be construed as providing that respondent is entitled to initially pursue his remedy before the Commissioner and is only required to proceed to arbitration if and when a de novo appeal is
We construe the relevant statutes to permit binding arbitration after a Berman hearing. We recently considered an analogous statutory scheme in Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557 [87 Cal.Rptr.3d 700, 198 P.3d 1109] (Schatz). In that case, a client in a fee dispute with his attorney first resorted to the Mandatory Fee Arbitration Act (MFAA), which provides a nonbinding method of arbitrating attorney-client fee disputes governed by rules established by the State Bar. (Bus. & Prof. Code, § 6200.) When the arbitrators decided in the attorney's favor, the client, Schatz, filed a complaint in superior court for a trial de novo, notwithstanding the fact that attorney and client had entered into an agreement for binding arbitration. Schatz, in resisting a petition to compel arbitration, argued that by its literal terms the MFAA, in Business and Professions Code section 6204, gives either party to an MFAA arbitration the right to a "trial" after the arbitration if a request for a trial is filed within 30 days.
We concluded in Schatz that there was no such implied repeal. "`Nothing in the MFAA makes [a binding] arbitration agreement. . . unenforceable. The MFAA and the CAA create two very different types of arbitration. . . . Both may be given effect. Clients may, if they wish, request and obtain nonbinding arbitration under the MFAA. That arbitration may, and often will, resolve the dispute. But if the client does not request nonbinding arbitration, or if it is held but does not resolve the dispute, then the MFAA has played its role, and the matter would continue without it. Either party may then pursue judicial action unless the parties had agreed to binding arbitration. In that event, the CAA would apply, and the dispute would go to binding arbitration. This
Like the Labor Commissioner below, we see no reason why the statutory protections afforded employees following a Berman hearing cannot be made available in an arbitration proceeding. A party to a Berman hearing seeking a de novo appeal via arbitration pursuant to a prior agreement rather than through a judicial proceeding would initially file an appeal in superior court pursuant to section 98.2, subdivision (a), together with a petition to compel arbitration. The superior court would determine whether the appeal is timely and whether it comports with all the statutory requirements, such as the undertaking requirement in subdivision (b). If so, and if the petition to compel arbitration is unopposed, or found to be meritorious, the trial court will grant the petition. The Labor Commissioner, pursuant to section 98.4, may then represent an eligible wage claimant in the arbitration proceeding. The one-way fee-shifting provisions of section 98.2, subdivision (c) will be enforced initially by the arbitrator, with such judicial review as may be appropriate.
The above framework does not purport to anticipate every problem that may arise from dovetailing the Berman hearing statutes and the CAA. But the Labor Commissioner's position below that the Berman hearing was merely preliminary to, rather than preemptive of, binding arbitration confirms our conclusion that the two statutory schemes are compatible and that having the Berman hearing precede arbitration is workable.
That a Berman hearing and an arbitration pursuant to the CAA are compatible does not, of course, answer the question whether an employer can require an employee to waive a Berman hearing and go directly to arbitration as a condition of employment. We turn now to the question.
Here we must decide whether an employee in the context of an arbitration agreement can waive the right to a Berman hearing and posthearing protections. In concluding that such rights may be waived, the Court of Appeal first acknowledged, correctly, that the right to vacation pay was a vested right and therefore unwaivable under section 227.3.
The Court of Appeal elaborated: "[T]he 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."
Although the statutory protections that the Berman hearing and the posthearing procedures afford employees were added piecemeal over a number of years, their common purpose is evident: Given the dependence of the average worker on prompt payment of wages, the Legislature has devised the Berman hearing and posthearing process as a means of affording an employee with a meritorious wage claim certain advantages, chiefly designed to reduce the costs and risks of pursuing a wage claim, recognizing that such costs and risks could prevent a theoretical right from becoming a reality. These procedures, including the employer undertaking and the one-way fee provision, also deter employers from unjustifiably prolonging a wage dispute by filing an unmeritorious appeal. This statutory regime therefore furthers the important and long-recognized public purpose of ensuring that workers are paid wages owed. The public benefit of the Berman procedures, therefore, is not merely incidental to the legislation's primary purpose but in fact central to that purpose. Nor can there be any doubt that permitting employers to require employees, as a condition of employment, to waive their right to a Berman hearing would seriously undermine the efficacy of the Berman hearing statutes and hence thwart the public purpose behind the statutes.
In contrast, arbitration, notwithstanding its advantages as a reasonably expeditious means of resolving disputes, still generally bears the hallmark of a formal legal proceeding in which representation by counsel is necessary or at least highly advantageous. The arbitration in question here, for example, is to be conducted by a "retired California Superior Court Judge" and "to the extent applicable in civil actions in California courts, the following shall apply and be observed: all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure section 631.8." The arbitrator's award at either party's request will be reviewed by a second arbitrator who will "as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment
Thus, an employee going directly to arbitration will lose a number of benefits and advantages. He or she will not benefit from the Labor Commissioner's settlement efforts and expertise. He or she must pay for his or her own attorney whether or not he or she is able to afford it—an attorney who may not have the expertise of the Labor Commissioner. Moreover, what matters to the employee is not a favorable arbitration award per se but the enforcement of that award, and an employee going directly to arbitration will have no special advantage obtaining such enforcement. Nor is there any guaranty that the employee will not be responsible for any successful employer's attorney fees, for under section 218.5, an employee who proceeds directly against an employer with a wage claim not preceded by a Berman hearing will be liable for such fees if the employer prevails on appeal.
Contrary to Sonic's suggestion, and that of the dissent, the fact that the Berman hearing is merely an option for employees, who may also go directly to court (§ 218), does not alter the nonwaivability of the Berman hearing protections, for it is precisely that option which an employer may not foreclose in a predispute agreement. The purpose of the Berman hearing statutes is to empower wage claimants by giving them access to a Berman hearing with all of its advantages. Allowing an employee the freedom to choose whether to resort to a Berman hearing when a wage claim arises, after evaluating in light of the particular circumstances whether such a hearing is advantageous, is wholly consistent with the public policy behind the Berman hearing statutes. A requirement that the employee surrender the option of a Berman hearing as a condition of employment is not. As we recognized in Armendariz, our concern is with the impermissible waiver of certain rights and protections as a condition of employment before a dispute has arisen. (See Armendariz, supra, 24 Cal.4th at p. 103, fn. 8.)
Sonic finds support for the Court of Appeal's holding in Gentry, in which we concluded that some class arbitration waivers are unlawful but declined to categorically declare invalid all such waivers. Gentry is readily distinguishable. Class arbitration is a judicially devised procedure. We acknowledged that class actions or arbitrations were not categorically necessary to vindicate statutory rights, and that under some circumstances, those rights could be adequately enforced by individual action. (Gentry, supra, 42 Cal.4th at pp. 462, 464.) We further recognized the well-established principle that "`[t]rial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action ....'" (Id. at pp. 463-464, quoting inder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435 [97 Cal.Rptr.2d 179, 2 P.3d 27].) In the present case, in contrast, the Berman hearing and posthearing procedures have been mandated by the Legislature to be available to all employees with wage complaints that fall within the scope of the statute. As discussed above, that mandate represents a legislative judgment about the special protections and procedural rights that should be afforded to persons with wage claims in order to ensure that such claims be fairly resolved. The judgment that such a waiver is contrary to public policy is not contingent upon the determination of a trial court, during a petition to compel arbitration, about whether and to what extent a particular wage claimant will benefit from the Berman hearing process. Indeed, as the Court of Appeal acknowledged, the trial court at that stage is in no position to determine such matters.
Moreover, notwithstanding the Court of Appeal's and Sonic's suggestions, Berman hearings and posthearing protections are by their own terms made available to all statutorily eligible wage earners, not merely low-wage workers. This legislative determination cannot be modified by a judicial determination that employees earning something more than a low wage do not really require these protections and therefore can be required to waive them as a condition of employment. Sonic suggests that the fact that Moreno had been earning over $100,000 at the time he left his employment means that he would not be in the class of persons unable to afford counsel and eligible for representation by the Labor Commissioner in the event of an appeal. But extending this suggestion into an argument that a Berman waiver as applied to Moreno is not contrary to public policy suffers from at least three flaws. First, as Moreno's counsel points out, there is nothing in the record regarding Moreno's present financial condition. Second, the determination of whether a claimant is unable to afford counsel is vested solely in the Labor Commissioner under section 98.4, and a superior court deciding a petition to compel arbitration is in no position to guess what the commissioner's determination will be. Third and most fundamentally, even if it could be determined that Moreno's financial condition was such that he would not be
In sum, rather than being justified by "legitimate commercial needs" (see Armendariz, supra, 24 Cal.4th at p. 117), the main purpose of the Berman waiver appears to be for employers to gain an advantage in the dispute resolution process by eliminating the statutory advantages accorded to employees designed to make that process fairer and more efficient. We conclude the waiver is markedly one sided and therefore substantively unconscionable. This substantive unconscionability, together with the significant element of procedural unconscionability, leads to the conclusion that the Berman waiver in the arbitration agreement at issue here is unconscionable.
Here, our conclusion that Berman waivers are contrary to public policy and unconscionable does not discriminate against arbitration agreements. We neither construe the arbitration agreement "in a manner different from that in which [we would] construe[] nonarbitration agreements" nor do we "rely on
In arguing that the FAA preempts a state law rule precluding Berman waivers, Sonic relies in particular on Preston, supra, 552 U.S. 346, and a careful examination of that decision is therefore necessary. In Preston, the United States Supreme Court considered a California case arising from a dispute between a television personality, Judge Alex Ferrer, and Attorney Arnold Preston regarding fees allegedly owed the latter. The agreement between them called for dispute resolution via arbitration. Ferrer claimed, however, that the attorney had been acting as a talent agent without a license in violation of the Talent Agencies Act (TAA; § 1700 et seq.), and that therefore under the terms of that statute the contract was invalid and unenforceable. (Preston, supra, 552 U.S. at p. 350.) Ferrer sought to adjudicate the matter in the first instance before the Labor Commissioner, with whom the TAA vests primary jurisdiction to adjudicate disputes arising under that statute, permitting an appeal within 10 days to the superior court for a de novo hearing. (§ 1700.44.) Preston sought instead to compel arbitration, but the trial court denied the petition on the ground that the Labor Commissioner had primary jurisdiction, and the Court of Appeal affirmed. After we denied review, the United States Supreme Court granted Preston's petition for a writ of certiorari. (Preston, supra, 552 U.S. at pp. 350-351.)
The Supreme Court reversed, holding that the TAA's grant of primary jurisdiction to the Labor Commissioner, inasmuch as it thwarted the arbitration agreement, violated the FAA. Section 2 of the FAA, which requires enforcement of arbitration agreements "save upon such grounds as exist at law or in equity for the revocation of any contract" (9 U.S.C. § 2) "`declare[s] a national policy favoring arbitration' of claims that parties contract to settle in that manner. Southland Corp. [v. Keating (1984)] 465 U.S. [1], 10 [79 L.Ed.2d 1, 104 S.Ct. 852]. That national policy, we held in Southland, `appli[es] in state as well as federal courts' and `foreclose[s] state legislative attempts to undercut the enforceability of arbitration agreements.' Id., at 16. The FAA's displacement of conflicting state law is `now well-established ...' [citations]." (Preston, supra, 552 U.S. at p. 353.)
"A recurring question under § 2 is who should decide whether `grounds ... exist at law or in equity' to invalidate an arbitration agreement. In Prima Paint
The Preston court then concluded that "Buckeye largely, if not entirely, resolves the dispute before us. The contract between Preston and Ferrer clearly `evidenc[ed] a transaction involving commerce,' 9 U. S. C. §2, and Ferrer has never disputed that the written arbitration provision in the contract falls within the purview of §2. Moreover, Ferrer sought invalidation of the contract as a whole. In the proceedings below, he made no discrete challenge to the validity of the arbitration clause. [Citation.] Ferrer thus urged the Labor Commissioner and California courts to override the contract's arbitration clause on a ground that Buckeye requires the arbitrator to decide in the first instance." (Preston, supra, 552 U.S. at p. 354, fn. omitted, italics added.)
The Supreme Court then rejected Ferrer's argument that the case was distinguishable from Buckeye because "the TAA merely requires exhaustion of administrative remedies before the parties proceed to arbitration." (Preston, supra, 552 U.S. at p. 354.) "The TAA permits arbitration in lieu of proceeding before the Labor Commissioner if an arbitration provision `in a contract between a talent agency and [an artist]' both `provides for reasonable notice to the Labor Commissioner of the time and place of all arbitration hearings' and gives the Commissioner `the right to attend all arbitration hearings.' § 1700.45. This prescription demonstrates that there is no inherent conflict between the TAA and arbitration as a dispute resolution mechanism. But § 1700.45 was of no utility to Preston. He has consistently maintained that he is not a talent agent as that term is defined in § 1700.4(a), but is, instead, a personal manager not subject to the TAA's regulatory regime. [Citation.] To invoke § 1700.45, Preston would have been required to concede a point fatal to his claim for compensation—i. e., that he is a talent agent, albeit an unlicensed one—and to have drafted his contract in compliance with a statute that he maintains is inapplicable.
"Procedural prescriptions of the TAA thus conflict with the FAA's dispute resolution regime in two basic respects: First, the TAA, in § 1700.44(a), grants the Labor Commissioner exclusive jurisdiction to decide an issue that
The Supreme Court further rejected Ferrer's contention "that the TAA is nevertheless compatible with the FAA because § 1700.44(a) merely postpones arbitration until after the Labor Commissioner has exercised her primary jurisdiction" and that after that proceeding "either party could move to compel arbitration under Cal. Civ. Proc. Code Ann. § 1281.2 (West 2007), and thereby obtain an arbitrator's determination prior to judicial review." (Preston, supra, 552 U.S. at p. 356.) The court noted that this position was inconsistent with the position Ferrer took below, and with a literal reading of the statute, that de novo review may be sought in superior court, not with an arbitrator. (Preston, supra, 552 U.S. at pp. 356-357.) But the court announced a broader holding: "A prime objective of an agreement to arbitrate is to achieve `streamlined proceedings and expeditious results.' [Citations.] That objective would be frustrated even if Preston could compel arbitration in lieu of de novo Superior Court review. Requiring initial reference of the parties' dispute to the Labor Commissioner would, at the least, hinder speedy resolution of the controversy." (Preston, supra, 552 U.S. at pp. 357-358.)
The Preston court distinguished the case before it from EEOC v. Waffle House, Inc. (2002) 534 U.S. 279 [151 L.Ed.2d 755, 122 S.Ct. 754]. In the latter case, the court had held that an arbitration agreement between an employer and an employee did not preclude the Equal Employment Opportunity Commission (EEOC) from exercising the independent prosecutorial authority granted it by Congress to pursue in court individual relief, or as the court phrased it, "victim-specific judicial relief," such as backpay, reinstatement, and damages, on behalf of employees subject to arbitration agreements. (Id. at p. 282; see id. at p. 287.) The EEOC was not a party to the arbitration agreements, and it exercises its prosecutorial duties without the consent or supervision of the employees on whose behalf it brings its action. (Id. at p. 291.) As the Preston court stated, Waffle House was distinguishable because "in proceedings under § 1700.44(a), the Labor Commissioner functions not as an advocate advancing a cause before a tribunal authorized to find the facts and apply the law; instead, the Commissioner serves as impartial arbiter. That role is just what the FAA-governed agreement between Ferrer and Preston reserves for the arbitrator. In contrast, in Waffle House..., the Court addressed the role of an agency, not as adjudicator but as prosecutor, pursuing an enforcement action in its own name or reviewing a discrimination charge to determine whether to initiate judicial proceedings." (Preston, supra, 552 U.S. at p. 359.)
We agree with the Court of Appeal that Preston is distinguishable. In this case, unlike in Buckeye and in Preston, the challenge is to a portion of the arbitration agreement—the Berman waiver—as contrary to public policy and unconscionable, rather than to the contract as a whole. Buckeye therefore does not apply. These cases are distinguished not merely because of the nature of the litigants' challenges, but also because of the fundamental differences between the two statutory regimes at issue. The statute in Preston, the TAA, merely lodges primary jurisdiction in the Labor Commissioner, and does not come with the same type of statutory protections as are found in the Berman hearing and posthearing procedures discussed above.
Sonic makes much of a paragraph in Preston that it argues supports its position. As noted above, the court stated: "A prime objective of an agreement to arbitrate is to achieve `streamlined proceedings and expeditious
This statement cannot be read, as Sonic urges, to mean that any state law procedure that delays the commencement of arbitration is preempted by the FAA. Rather, the Preston court's statement, read in context, is quite narrow. It merely affirms that a violation of the Buckeye rule will not be excused if the administrative agency displacing the arbitrator's jurisdiction does so only preliminarily and is subject to de novo review in arbitration, because such displacement is not costless, but in fact would lead to delay. (Preston, supra, 552 U.S. at pp. 357-358.) But here Buckeye does not apply, because of Moreno's meritorious challenge to a provision in the arbitration agreement itself. The above quoted statement explaining why the Buckeye rule applies notwithstanding the fact that arbitration may be delayed rather than denied cannot justifiably be expanded into a statement asserting that any time an arbitration is delayed by application of a state statute, even when Buckeye does not apply, the statute must be invalidated.
As noted, the superior court order stated that "until there has been the preliminary non-binding hearing and decision by the Labor Commissioner, the arbitration provisions of the employment contract are unenforceable, and any petition to compel arbitration is premature and must be denied." The judgment of the Court of Appeal is reversed and the cause is remanded with directions to reinstate the superior court's order.
Kennard, Acting C. J., Werdegar, J., and George, J.,
Both California and federal law strongly favor judicial enforcement of arbitration agreements according to their terms. The majority's conclusion that the arbitration agreement in this case is contrary to public policy—and therefore unenforceable—is inconsistent with the state and federal policies favoring enforcement of arbitration agreements and is inconsistent with decisions of both this court and the United States Supreme Court. Moreover, because, as the United States Supreme Court recently held, federal law—the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.)— "supersede[s]" state laws that "lodg[e] primary jurisdiction" over a dispute the parties have agreed to arbitrate in an "administrative" forum (Preston v.
I also do not join the majority's holding that the arbitration provision in this case is unconscionable—and therefore unenforceable—insofar as it precludes the wage claimant from requesting an administrative hearing—known as a "Berman hearing"—before submitting his claim for vacation pay to arbitration. Procedurally, we should not reach this issue, because the claimant did not pursue it in the trial court, in the Court of Appeal, or in this court until we requested briefing on it. Substantively, the majority errs by discounting the benefits to the employee of waiving the right to pursue a Berman hearing. It also errs in focusing narrowly only on what it calls the "Berman waiver." (Maj. opn., ante, at p. 669.) In assessing substantive unconscionability, we should instead focus broadly on the purpose and benefits of the arbitration provision as a whole. Viewed from this broader perspective, the arbitration provision is not unconscionable.
For these reasons, I dissent.
Frank Moreno was an employee of Sonic-Calabasas A, Inc. (Sonic). In December 2006, after voluntarily ending his employment, Moreno filed a wage claim with the Labor Commissioner pursuant to Labor Code section 98 et seq.
In February 2007, Sonic filed in the superior court a petition to compel arbitration of Moreno's claim and to dismiss his pending administrative action. It relied on the broad and comprehensive arbitration provision in an agreement Moreno had signed, which provides in relevant part: "I ... acknowledge that [Sonic] utilizes a system of alternative dispute resolution that involves binding arbitration to resolve all disputes that may arise out of the employment context. Because of the mutual benefits (such as reduced expense and increased efficiency) which private binding arbitration can provide both [Sonic] and myself, both [Sonic] and I agree that any claim, dispute, and/or controversy (including, but not limited to, any claims of discrimination and harassment ...) that either I or [Sonic] ... may have against the other which would otherwise require or allow resort to any court or other governmental dispute resolution forum arising from, related to, or
Moreno and the Labor Commissioner, who intervened on Moreno's behalf, opposed Sonic's motion to compel. They argued that, insofar as the arbitration agreement may be interpreted to preclude Moreno from pursuing a Berman hearing, it substantially burdens his ability to vindicate his right to vacation pay and, therefore, is unenforceable as against public policy.
The superior court denied the petition to compel arbitration, finding that the arbitration provision violates public policy insofar as it waives Moreno's right to pursue a Berman hearing. The Court of Appeal reversed, finding that this waiver does not substantially burden Moreno's ability to vindicate his right to vacation pay and, therefore, is not unenforceable as against public policy.
Through enactment of a comprehensive statutory scheme regulating private arbitration, the Legislature "has expressed a `strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.' [Citations.]" (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 [10 Cal.Rptr.2d 183, 832 P.2d 899] (Moncharsh).) "The policy of [California's] law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing." (Utah Const. Co. v. Western Pac. Ry. Co. (1916) 174 Cal. 156, 159 [162 P. 631].) Thus, California law establishes "a presumption in favor of arbitrability." (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971 [64 Cal.Rptr.2d 843, 938 P.2d 903] (Engalla).)
The clearest expression of California's policy favoring arbitration appears in Code of Civil Procedure section 1281, which declares that "[a] written
In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 171 [30 Cal.Rptr.3d 76, 113 P.3d 1100], the majority indicated that one ground for revoking an arbitration agreement is that the agreement is "contrary to public policy." However, because public policy requires and encourages the making of contracts upon all valid and lawful considerations, and because the courts' power to declare a contract void as against public policy is "`very delicate and undefined,'" courts should exercise this power "`only in cases free from doubt,'" where "it is entirely plain" that the contract violates sound public policy. (Stephens v. Southern Pacific Co. (1895) 109 Cal. 86, 89 [41 P. 783] (Stephens).) This general principle of contract law applies with added force where an arbitration agreement is at issue, given California's public policy favoring arbitration. Because arbitration is, under California law, "a highly favored means of settling [employment] disputes," courts must "`indulge every intendment to give effect to such proceedings'" and "should endeavor to reach a result [that] comports with the `strong public policy' favoring arbitration." (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 189 [151 Cal.Rptr. 837, 588 P.2d 1261] (Doers).) The party challenging the contractual arbitration provision bears the burden of showing that its enforcement would violate "`settled public policy.'" (Stephens, supra, at p. 90.)
In several relatively recent decisions, we have discussed the scope of the public policy exception to the statutory rule that arbitration agreements are enforceable according to their terms. In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 91 [99 Cal.Rptr.2d 745, 6 P.3d 669] (Armendariz), we considered the validity of an agreement, imposed by the employer as a condition of employment, that required an employee to arbitrate a discrimination claim brought under the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.). We first found that, because "the statutory rights established by the FEHA are `for a public reason'" (Armendariz, supra, at p. 100), "FEHA rights are unwaivable" (id. at
We next took up the issue in Gentry v. Superior Court (2007) 42 Cal.4th 443, 450 [64 Cal.Rptr.3d 773, 165 P.3d 556] (Gentry), which involved the validity of a predispute arbitration agreement that precluded class arbitration of employees' statutory claims for overtime pay. In a closely divided decision, a bare majority of this court held that, because the statutory right to overtime pay fosters the public health and welfare and is therefore unwaivable, a class arbitration waiver is unenforceable if it significantly and substantially burdens the ability of employees to vindicate their rights to overtime pay by placing serious and formidable obstacles in the way of prosecuting claims for such pay (id. at pp. 450, 463-466).
Applying the framework of Armendariz and Gentry, the Court of Appeal in this case first considered whether the right to vacation pay is an unwaivable statutory right. Concluding that it is, the court then considered whether arbitration would significantly impair Moreno's ability to vindicate this right. Finding nothing in the record to indicate that it would, the Court of Appeal held that the arbitration provision is enforceable.
The Court of Appeal correctly applied Armendariz and Gentry. As the majority observes, "`[t]he Berman hearing procedure is designed to provide a speedy, informal, and affordable method of resolving wage claims.'" (Maj. opn., ante, at p. 672.) Arbitration is similarly designed; our public policy favors arbitration precisely because it is a speedy, informal, and relatively inexpensive means of dispute resolution. (Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1080 [90 Cal.Rptr.2d 334, 988 P.2d 67] (Broughton); Moncharsh, supra, 3 Cal.4th at p. 9.) It is true, as the majority explains, that a Berman hearing may offer some employees certain procedural advantages that may, in a given case, make it somewhat easier to recover unpaid vacation wages. (Maj. opn., ante, at pp. 680-681.) But that circumstance does not establish that arbitration according to the terms of arbitration agreements would not "permit[]"employees "to vindicate" their statutory right to vacation pay—which is the relevant inquiry under Armendariz, supra, 24 Cal.4th at page 90—or would significantly and substantially burden their ability to vindicate that right by placing serious and formidable obstacles in the way of prosecuting their claims for overtime pay—which appears to be the inquiry
There are several indications that the Legislature agrees with this conclusion. To begin with, nothing in the language of the statutes setting forth the Berman procedures (the Berman statutes) even hints that those procedures are nonwaivable or that an employee may not agree to arbitrate a claim. Moreover, under the statutes, there is, in fact, no right to a Berman hearing; there is only a right to file a complaint requesting a Berman hearing. As the majority observes, in response to the filing of such a complaint, the Labor Commissioner has three options: (1) hold a Berman hearing; (2) prosecute a civil action; or (3) take no action on the complaint. (Maj. opn., ante, at p. 672.) The benefits of a Berman hearing are potentially available only if the Labor Commissioner chooses the first option. Finally, as the majority also observes, an employee may choose to skip the administrative procedure entirely and go directly to court. (Maj. opn., ante, at p. 671.) The Legislature's failure to make a Berman hearing mandatory and the absence of any language prohibiting waiver suggest that, in the Legislature's view, an employee may adequately vindicate the statutory right to vacation pay in an alternative forum, such as arbitration. I see no reason to reject the Legislature's view.
Notably, the majority does not contend otherwise. It does not assert that requiring Moreno to arbitrate according to his agreement would either eliminate or substantially burden his ability to vindicate his right to vacation pay. In fact, according to the majority, notwithstanding Armendariz and Gentry, that is not even the relevant inquiry. Instead, the majority asserts, "the question [here] is whether [an] employee's statutory right to seek a Berman hearing, with all the possible protections that follow from it, is itself
Initially, I note that the majority's formulation of the issue here is completely at odds with Moreno's. As he did in the trial court and the Court of Appeal, Moreno has consistently argued in this court that the arbitration agreement is against public policy—and thus unenforceable—because arbitration lacks some of the procedural advantages that may come with a Berman hearing and therefore "would drastically undercut his ability to vindicate" his nonwaivable, statutory right to vacation pay. Indeed, according to Moreno, analyzing whether the alleged benefits of a Berman hearing "are substantive, unwaivable rights in their own"—which is precisely what the majority does—"confuses what it is that is unwaivable—the underlying statutory right to payment of accrued vacation wages upon separation of employment—with the remedial tools that flow from the Labor Commissioner's wage adjudication process." Thus, the majority's analysis will, no doubt, come as a surprise to the parties.
Substantively, as to whether an employee's statutory right to request a Berman hearing is itself waivable, irrespective of an employee's ability to vindicate his or her right to vacation pay in arbitration, the "established rule" in California is that "rights conferred by statute may be waived unless specific statutory provisions prohibit waiver." (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1049, fn. 4 [68 Cal.Rptr.2d 758, 946 P.2d 427] (Bickel).) "As we have recognized for over a century, the law `will not compel a man to insist upon any benefit or advantage secured to him individually.' [Citation.] Accordingly, a party may waive compliance with statutory conditions intended for his or her benefit, so long as the Legislature has not made those conditions mandatory. [Citations.]" (Sharon S. v. Superior Court (2003) 31 Cal.4th 417, 426-427 [2 Cal.Rptr.3d 699, 73 P.3d 554] (Sharon S.).) Thus, under the majority's approach, the starting point for the inquiry should be "whether there is any [statutory] language ... prohibiting a waiver" of an employee's right to request a Berman hearing. (Bickel, supra, at p. 1049.)
Here, the relevant statutes contain no language even hinting that the right to request a Berman hearing is unwaivable or that the holding of a Berman hearing is mandatory. Indeed, by allowing employees to skip the administrative process entirely and go directly to court, the statutory language suggests
Again, the majority does not assert otherwise. Instead, in concluding that the right to request a Berman hearing is unwaivable, the majority invokes the principle that a law established for a public reason may not be contravened by a private act or agreement. (Maj. opn., ante, at pp. 678-680.)
For several reasons, the majority's analysis is unpersuasive. First, given that the Legislature has already established a public policy of allowing waiver—by not making a Berman hearing mandatory and by allowing employees to go directly to court without requesting a Berman hearing—it seems inappropriate for this court to adopt a contrary view of public policy. Second, as the court's opinion in Bickel explained, "[s]ome public benefit is ... inherent in most legislation." (Bickel, supra, 16 Cal.4th at p. 1049.) Thus, "[t]he pertinent inquiry" under the principle the majority invokes "is not whether the law has any public benefit, but whether that benefit is merely incidental to the legislation's primary purpose." (Ibid., italics added.) Unquestionably, the primary purpose of the Berman statutes is to assist the individual employee in recovering unpaid wages. Although the public may benefit. from such recovery, that benefit is merely incidental to the statutes' primary purpose. Moreover, because, as I have explained, arbitration would enable Moreno to vindicate his right to vacation pay, waiver of his right to request a Berman hearing would not "`seriously compromise any public purpose'" the statutes were "`intended to serve' [citation]." (Sharon S., supra, 31 Cal.4th at p. 426.) Therefore, the principle on which the majority relies does not apply here to preclude employees, by agreeing to arbitration, from waiving their right to request a Berman hearing.
This conclusion is consistent with analogous authority from both this court and the United States Supreme Court. In Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 640 [87 L.Ed.2d 444, 105 S.Ct. 3346] (Mitsubishi Motors), the high court held that a federal antitrust claim is arbitrable under an arbitration clause in an agreement embodying an international commercial transaction. A contrary result, the court explained, could not be justified by "the fundamental importance to American democratic capitalism of the regime of the antitrust laws. [Citations.]" (Id. at p. 634.) Although acknowledging that an antitrust claim is not merely a private matter, that the antitrust laws are designed to promote the national interest in a competitive economy, that an antitrust plaintiff acts as a private attorney
In Shearson/American Express, Inc. v. McMahon (1987) 482 U.S. 220 [96 L.Ed.2d 185, 107 S.Ct. 2332] (McMahon), the court held valid and enforceable a predispute agreement to arbitrate a claim brought under the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. § 1961 et seq.). In reaching its conclusion, the court rejected the argument that "the public interest in the enforcement of RICO precludes" submission of a RICO claim to arbitration. (McMahon, at p. 240.) The court found that, like the antitrust treble damages provision at issue in Mitsubishi Motors, RICO's treble damages remedy has primarily a "remedial purpose," and that its "policing function ..., although important, [is] a secondary concern. [Citation.]" (McMahon, at pp. 240-241.) Because RICO plaintiffs "may effectively vindicate their RICO claim[s] in an arbitral forum, ... there is no inherent conflict between arbitration and the purposes underlying [RICO]." (McMahon, at p. 242.)
In Rodriguez de Quijas v. Shearson/Am. Exp. (1989) 490 U.S. 477 [104 L.Ed.2d 526, 109 S.Ct. 1917] (Rodriguez de Quijas), the court held that predispute agreements to arbitrate claims under the federal Securities Act of 1933 (1933 Act) (15 U.S.C. § 77a et seq.) are valid and enforceable. About 35 years earlier, in Wilko v. Swan (1953) 346 U.S. 427 [98 L.Ed. 168, 74 S.Ct. 182] (Wilko), the court held otherwise, relying largely on the fact that the 1933 Act conferred on buyers of securities special procedural advantages, including broadened venue and nationwide service of process in federal court, no amount-in-controversy requirement for diversity cases, and concurrent jurisdiction in state and federal courts without the possibility of removal. (Wilko, at pp. 431-435.) Congress provided these advantages, the court
In Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 23 [114 L.Ed.2d 26, 111 S.Ct. 1647] (Gilmer), the high court held that a mandatory, predispute employment agreement to arbitrate an age discrimination claim brought under federal law is valid and enforceable. In reaching this conclusion, the court rejected the argument that the arbitration agreement was unenforceable because the Age Discrimination in Employment Act of 1967 (ADEA) (29 U.S.C. § 621 et seq.) "is designed not only to address individual grievances, but also to further important social policies. [Citation.]" (Gilmer, at p. 27.) The court explained: "We do not perceive any inherent inconsistency between those policies, however, and enforcing agreements to arbitrate age discrimination claims.... Both [arbitration and judicial dispute resolution]... can further broader social purposes.... `[S]o long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.' [Citation.]" (Id. at pp. 27-28.) The court also rejected the argument that arbitration was inadequate because it offered more limited discovery than litigation in court, explaining: "[T]here has been no showing in this case that the [arbitration] discovery provisions ... will prove insufficient to allow ADEA claimants ... a fair opportunity to present their claims. Although those procedures might not be as extensive as in the federal courts, by agreeing to arbitrate, a party `trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.' [Citation.]" (Id. at p. 31.) Finally, the court rejected the claim that the mandatory, predispute employment arbitration clause should be unenforceable because "there often will be unequal bargaining power between employers and employees." (Id. at p. 33.) "Mere inequality in
In several decisions, we have followed these high court precedents to uphold the validity of predispute arbitration agreements. In Broughton, supra, 21 Cal.4th at page 1084, at issue was a predispute agreement to arbitrate a damage claim under the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.). In holding that the agreement was valid and enforceable, we explained: "Such an action is primarily for the benefit of a party to the arbitration, even if the action incidentally vindicates important public interests. [Citation.] In the context of statutory damages claims, the United States Supreme Court has consistently rejected plaintiffs' arguments that abbreviated discovery, arbitration's inability to establish binding precedent, and a plaintiff's right to a jury trial render the arbitral forum inadequate, or that submission of resolution of the claims to arbitration is in any sense a waiver of the substantive rights afforded by statute. [Citations.] `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, rather than a judicial, forum.' [Citation.]" (Broughton, supra, at p. 1084.)
In Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 317-318 [133 Cal.Rptr.2d 58, 66 P.3d 1157] (Cruz), we held that a predispute agreement to arbitrate a claim for restitution and disgorgement under the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.) is valid and enforceable. In reaching this conclusion, we rejected the argument that such a claim is inarbitrable because "restitution under the UCL accomplishes a public purpose by deterring unlawful conduct," explaining: "[T]he same could be said of damages under the CLRA or under various federal statutes. This deterrent effect is, however, incidental to the private benefits obtained from those bringing the restitutionary or damages action. [Citation.] The Supreme Court has made clear that such actions, notwithstanding the public benefit, are fully arbitrable under the FAA."
As the high court has explained, the FAA not only declares a liberal federal policy favoring arbitration agreements, it creates a body of federal substantive law that requires courts to enforce privately negotiated arbitration agreements within the FAA's coverage according to their terms. (Volt Info. Sciences v.
In Preston, the high court recently made clear that the FAA preempts not only state laws that require a judicial forum for resolution of disputes the parties have agreed to arbitrate, but also "state statutes that refer [such] disputes initially to an administrative agency." (Preston, supra, 552 U.S. at p. 349.) At issue there was the constitutionality of a California statute very much like the Berman statutes in that it required the Labor Commissioner to "hear and determine" disputes arising under California's Talent Agencies Act (TAA) (§ 1700 et seq.), "subject to an appeal within 10 days after determination, to the superior court where the same shall be heard de novo." (§ 1700.44, subd. (a).) In Preston, an attorney who performed services in the entertainment industry sought recovery of fees for services rendered to a former Florida judge who appeared on television. (552 U.S. at p. 350.) The attorney demanded arbitration based on the parties' agreement to arbitrate any dispute relating to their contract. The former judge responded by filing a petition with the Labor Commissioner charging that their contract was illegal because, in violation of the TAA, the attorney had acted as a talent agent without the required license. (Preston, supra, at p. 350.) A California trial court denied the motion to compel arbitration, and the California Court of Appeal affirmed that decision, reasoning that section 1700.44, subdivision (a), "vest[ed] `exclusive original jurisdiction' over the dispute in the Labor Commissioner. [Citation.]" (Preston, supra, at p. 351.) The high court reversed, holding that the statute "conflict[ed] with the FAA's dispute resolution regime" by "grant[ing] the Labor Commissioner exclusive jurisdiction to decide an issue that the parties agreed to arbitrate [citation] ...." (Preston, supra, at p. 356.) In reaching its conclusion, the court rejected the claim that, because de novo review of the
The majority holds that the Berman statutes do precisely what Preston says, under the FAA, a state statute may not do: lodge primary jurisdiction over a dispute in an administrative agency notwithstanding the parties' agreement to arbitrate that dispute. Under Preston, the Berman statutes, so construed, directly conflict with the FAA and violate the supremacy clause of the United States Constitution (U.S. Const., art. VI, cl. 2). Preston also establishes that the availability of arbitration after a Berman hearing, as part of the statutory de novo review process, does not permit a different conclusion. What the high court said about the TAA in Preston fully applies to the Berman statutes, as the majority construes them: "Requiring initial reference of the parties' dispute to the Labor Commissioner would, at the least, hinder speedy resolution of the controversy." (Preston, supra, 552 U.S. at p. 358.) In this regard, the majority acknowledges that we noted in 1998 that the time between filing a complaint with the Labor Commissioner and a Berman hearing date was usually four to six months, and that Sonic has documented cases in which the commencement of a Berman hearing took a year or more. (Maj. opn., ante, at p. 681, fn. 5.) Moreover, as we have previously observed, because either party to a Berman hearing "has a right to a trial de novo in superior court, where the ruling of the Labor Commissioner's hearing officer is entitled to no deference," "Berman hearings may result in no cost savings" to the parties. (Gentry, supra, 42 Cal.4th at p. 464.) Thus, the prospect of arbitration after a Berman hearing does not alter the conclusion that the Berman statutes, as the majority construes them, are incompatible with the FAA. In short, as an Illinois appellate court held just last year, "Preston makes it clear that the [FAA] preempts" the Berman statutes insofar as they "vest[] [primary] jurisdiction in the [Labor] Commissioner rather than an arbitration proceeding ... as provided in [a] contract." (Ruff v. Splice (2010) 398 Ill.App.3d 431 [338 Ill.Dec. 101, 923 N.E.2d 1250, 1253].)
The majority's grounds for distinguishing Preston are unpersuasive. The majority first observes that unlike Preston, which involved a challenge to the parties' "contract as a whole," this case involves a challenge only "to a portion of the arbitration agreement." (Maj. opn., ante, at p. 692.) This observation, although accurate, is irrelevant. In Preston, the circumstance that
The majority next asserts that Preston is distinguishable because of "the fundamental differences" between the TAA and the "statutory regime[]" now before us. (Maj. opn., ante, at p. 692.) According to the majority, because the TAA "does not come with the same type of statutory protections as are found in the Berman hearing and posthearing procedures," Preston does not govern. (Maj. opn., ante, at p. 692.)
The potential procedural advantages the Legislature has attached to a Berman hearing do not render Preston inapplicable. Under Preston, were our Legislature, based on its view of public policy, to enact a statute requiring administrative determination of a claim before resort to any other forum, the FAA would preempt that statute's enforcement where the parties have agreed, in a predispute agreement evidencing interstate commerce, to arbitrate that claim. Indeed, this conclusion follows not just from Preston, but from other decisions in which the high court has expressly "rejected the proposition that the enforceability of [an] arbitration agreement turn[s] on [a] state legislature's judgment concerning the forum for enforcement of [a] state-law cause of action. [Citation.]" (Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 446 [163 L.Ed.2d 1038, 126 S.Ct. 1204] (Buckeye).) The Legislature may not circumvent this proscription simply by attaching advantageous procedures to the administrative process and declaring—either expressly or, as the majority finds here, impliedly—those procedures to be unwaivable as a matter of public policy. As the high court has made clear, the FAA's preemptive policy requiring enforcement of arbitration agreements according to their terms applies "notwithstanding any state substantive or procedural policies to the contrary." (Moses H. Cone Hospital v. Mercury Constr. Corp., supra, 460 U.S. at p. 24, italics added.)
The majority's analysis is inconsistent with Southland. Contrary to the majority's conclusion, under Southland, "the defense to arbitration" the majority has read into the Berman statutes—based on a state public policy that precludes waiver of a Berman hearing's potential procedural advantages—"is not a ground that exists at law or in equity `for the revocation of any contract' but merely a ground that exists for the revocation of arbitration provisions in contracts subject to" the Berman statutes. (Southland, supra, 465 U.S. at p. 16, fn. 11; see Carter v. SSC Odin Operating Co., LLC (2010) 237 Ill.2d 30 [340 Ill.Dec. 196, 927 N.E.2d 1207, 1218-1219] (Carter) (anti-waiver provisions of state Nursing Home Care Act, although based on public policy, "are not a defense generally applicable to `any contract'"
The majority's analysis is also inconsistent with the high court's more recent decision in Buckeye, supra, 546 U.S. 440. In Prima Paint v. Flood & Conklin (1967) 388 U.S. 395, 402-404 [18 L.Ed.2d 1270, 87 S.Ct. 1801], the court held that, as a matter of substantive federal arbitration law, a contract's arbitration provision is severable from the rest of the contract, and challenges to the validity of the contract as a whole, as opposed to the arbitration provision itself, must be arbitrated in the first instance. Notwithstanding this decision, in Cardegna v. Buckeye Check Cashing, Inc. (Fla. 2005) 894 So.2d 860, 864-865, the Florida Supreme Court held that, where the party resisting arbitration alleges that the entire contract is illegal and thus unenforceable as a matter of state public policy, a Florida court, and not an arbitrator, must first determine the contract's legality. In Buckeye, supra, 546 U.S. at page 446, the high court reversed the Florida court's decision, explaining that, under the FAA, Florida's public policy of refusing to enforce an arbitration provision in an illegal contract is "irrelevant." The court explained: "[I]n Southland, . . . [w]e . . . rejected the proposition that the enforceability of [an] arbitration agreement turned on the state legislature's judgment concerning the forum for enforcement of the state-law cause of action. [Citation.] So also here, we cannot accept the Florida Supreme Court's conclusion that enforceability of the arbitration agreement should turn on `Florida public policy and contract law' [citation]." (Buckeye, supra, 546 U.S. at p. 446.) Under Buckeye, the majority's conclusion that Moreno's predispute waiver of his right to request a Berman hearing violates state public policy is simply "irrelevant," and its view that the arbitration provision's enforceability "should turn on `[California] public policy and contract law'" is erroneous as a matter of federal law. (Buckeye, supra, 546 U.S. at p. 446.) As Buckeye firmly establishes, contrary to the majority's view, the FAA does not permit either the Legislature or a majority of this court to refuse to enforce an arbitration agreement based on its "judgment concerning the forum for enforcement of the state-law cause of action" for vacation pay.
Again, Preston conclusively refutes the majority's understanding of the FAA. There, in holding that the FAA preempts the TAA, the high court distinguished between an agency acting in the role of "adjudicator" and an agency acting in the role of "prosecutor, pursuing an enforcement action in its own name or reviewing a . . . charge to determine whether to initiate judicial proceedings." (Preston, supra, 552 U.S. at p. 359.) In proceedings under the TAA, the court explained, "the Labor Commissioner functions not as an advocate advancing a cause before a tribunal authorized to find the facts and apply the law; instead, the Commissioner serves as impartial arbiter." Because "[t]hat role is just what the FAA-governed agreement between [the parties] reserves for the arbitrator," the court explained, the TAA is incompatible with the FAA. (Preston, at p. 359.) Similarly, in a Berman hearing, the Labor Commissioner functions not as an advocate advancing a cause before a tribunal authorized to find the facts and apply the law; instead, the Commissioner serves as impartial arbiter. And because that role is just what the FAA-governed agreement between Moreno and Sonic reserves for the arbitrator, the Berman statutes, as interpreted by the majority, are incompatible with the FAA. Thus, the FAA preempts the Berman statutes insofar as the majority construes them, as a matter of public policy, to allow Moreno to pursue a Berman hearing notwithstanding his agreement to forego that option and arbitrate his claim for vacation pay.
The majority alternatively holds that the arbitration provision is unconscionable insofar as it precludes Moreno from requesting a Berman hearing before submitting his claim to arbitration. For both procedural and substantive reasons, I do not join this holding.
Procedurally, we should not reach the issue. In Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, 681 [108 Cal.Rptr.3d 171, 229 P.3d 83], we recently held that the plaintiff, who was resisting a petition to compel arbitration, had "forfeited" his claim of unconscionability by failing to "raise the issue." Here, after inserting a boilerplate allegation of unconscionability as an affirmative defense in his response to Sonic's petition to compel arbitration, Moreno did nothing in the trial court to pursue that defense. In his briefs, he argued only that the arbitration provision violates public policy insofar as it burdens his ability to vindicate his right to vacation pay. Nor did he assert unconscionability in the Court of Appeal, in the petition for review he filed in this court, or in the opening and reply briefs he filed with us. It was not until well after briefing closed in this court, when we resurrected the issue by asking the parties to discuss it in supplemental briefs, that Moreno ever mentioned unconscionability again. On this record, and given that Moreno, as the party asserting unconscionability, bears the burden of proving unconscionability (Engalla, supra, 15 Cal.4th at p. 972; Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099 [118 Cal.Rptr.2d 862]), Moreno has forfeited or abandoned the issue.
Alternatively, rather than decide the merits, we should remand the issue of unconscionability for consideration in the lower courts, as we did a similar claim in Boghos v. Certain Underwriters at Lloyd's of London (2005) 36 Cal.4th 495, 509 [30 Cal.Rptr.3d 787, 115 P.3d 68]. There, after reversing a finding that an arbitration provision was unenforceable based on unwaivability, we declined to address an unconscionability claim, noting that "no court ha[d] yet addressed" the issue and stating: "Considerations of judicial economy make it appropriate to leave [this] question[] to the lower courts in the first instance. [Citation.]" (Ibid.) Consistent with our decision, several published decisions have since explained that, because a determination of unconscionability requires development of a factual record, an appellate court should not address an unconscionability claim that has not been litigated in the trial court. (Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313, 1338-1339
Substantively, the majority's analysis is unpersuasive. The majority finds that a predispute "Berman waiver" is "markedly one sided" because it "only benefit[s] the employer at the expense of the employee" and the majority finds itself unable to say that the benefits of arbitration "compensate[]" the employee for giving up the option of a Berman hearing. (Maj. opn., ante, at p. 686.) Thus, the majority declares, "the main purpose of the Berman waiver appears to be for employers to gain an advantage in the dispute resolution process by eliminating the statutory advantages accorded to employees designed to make that process fairer and more efficient." (Ibid., italics added.) However, as previously noted, because of the de novo review process under the Berman statutes, a decision to waive the administrative option potentially saves the employee both time and money. The majority's analysis disregards these substantial benefits.
Moreover, the focus of the majority's analysis is incorrectly narrow. Contrary to what the majority's discussion suggests, the agreement at issue here does not contain a "Berman waiver" per se. Rather, as noted above, it contains a broad, bilateral arbitration provision that applies, with certain exceptions, to "`all disputes that may arise out of the employment context . . . that either [party] . . . may have against the other which would otherwise require or allow resort to any court or other governmental dispute resolution forum.'" (See, ante, at p. 696.) It is this broad, bilateral provision for arbitration that encompasses, among other things, what the majority calls "the Berman waiver." An assessment of substantive unconscionability should consider the purpose and benefits to the employee of this broad arbitration provision. Thus, the majority errs in focusing narrowly only on the purpose and benefits of the provision insofar as it constitutes a waiver of Berman procedures.
Viewed from a broader perspective, the arbitration provision is not unconscionable. As noted above, it requires both the employer and the employee to submit all of their claims against each other to binding arbitration, subject to
The laws of both California and the United States require courts to enforce arbitration agreements according to their terms, absent a ground for revocation of any contract. Because no such ground exists in this case, the arbitration provision at issue is fully enforceable. The majority's contrary conclusion is inconsistent with federal and state law, and renders California's statutory scheme preempted by the FAA.
Of greater concern than the fate of the arbitration provision at issue in this case are the far-reaching implications of the majority's decision for arbitration in California. Under the majority's analysis, for an arbitration agreement to be valid and enforceable, it is no longer enough that arbitration allows full vindication of the substantive statutory right at issue. To invalidate an arbitration agreement, a court need only find some advantageous procedure that the Legislature has attached to a particular forum, and declare—without any indication from the Legislature—that waiver of that procedure is against public policy. Under the majority's analysis, for an arbitration agreement to be valid and enforceable, it also is no longer enough that an employer, like its employee, agrees to arbitrate all of its claims, and even provides for exceptions to arbitration that may be invoked only by the employee. To invalidate an arbitration agreement as impermissibly one sided and unconscionable, a court, isolating one claim from the many the parties have agreed to arbitrate, need only declare itself unable to say that the benefits the employee gains from arbitration of that isolated claim compensate for what the employee loses. In these respects, the majority's decision substantially
Baxter, J., and Corrigan, J., concurred.
Moreover, Moreno did raise the unconscionability issue below as an affirmative defense to the petition to compel arbitration. Although as a matter of general policy we do not decide issues not raised in the Court of Appeal (Cal. Rules of Court, rule 8.500(c)(1)), we may depart from that policy when an important countervailing purpose would be served. (Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 6-7 & fn. 2 [74 Cal.Rptr.2d 248, 954 P.2d 511] [this court has the discretion to consider important issues of law not argued by the parties below].) Here, as explained below, the issues of public policy and unconscionability are closely linked, and a decision on both issues will serve to clarify the scope of our holding, as well as more fully explain our conclusion that a rule generally prohibiting a Berman waiver as a condition of employment is not preempted by the FAA.
However, as the Illinois Supreme Court recently explained, the California statute the high court found preempted in Preston "did not single out or target arbitration agreements explicitly," but "simply placed [primary] jurisdiction of labor disputes with an administrative agency [citations]." (Carter, supra, 927 N.E.2d at p. 1218.) Preston thus "make[s] clear that state statutes are preempted by the FAA if the statutes as applied preclude the enforcement of federally protected arbitration rights, regardless of whether the state statutes specifically target arbitration agreements." (Carter, at p. 1218.)
