A decision issued this week by the California Supreme Court should impel businesses that require employees to sign a binding arbitration agreement to review that agreement and those that do not use such agreements to explore the pros and cons of doing so.

In Sonic-Calabasas A, Inc. v. Moreno, S174475 (Feb. 24, 2011), the Supreme Court held, 4-3, that it was contrary to public policy and unconscionable to require an employee in an arbitration agreement to waive his or her option to first file an administrative complaint with the California Labor Commissioner leading to a Berman hearing. The Berman hearing is available to employees in California who claim they were not paid wages owed.

Decisions issued after a Berman hearing, which is informal, are enforceable judgments, but either party may appeal to the appropriate state court for a de novo review. If the party seeking review is unsuccessful, that party is liable for the other’s attorneys fees—except in cases where the employee is awarded any amount greater than zero; then, the employee is considered the prevailing party and entitled to attorneys fees.

The Supreme Court further ruled in Sonic-Calabasas A that once a Berman hearing has been held, the result of any appeal is subject to binding arbitration under an arbitration agreement, assuming that the agreement properly safeguarded the employee’s rights as defined in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83.

The significance of permitting an employee a Berman hearing is that it affords the Labor Commissioner the opportunity to represent the employee at any arbitration after such a hearing and that the “one-way attorney fee provision” for appeal of wage claims would be imposed on the arbitration.

It is important that employers who use binding arbitration agreements have them periodically reviewed by employment counsel to ensure that they conform to current law. Employers who do not currently use such agreements may want to explore their use with counsel.

If you have questions about binding arbitration agreements, including how Sonic-Calabasas A might affect yours, contact any member of the Labor and Employment Group.


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