Adr Update: Are We Still Trying to Figure Out Concepcion?

• Publication year: 2014
• Author: By Barbara Reeves Neal

ADR Update: Are We Still Trying to Figure Out Concepcion?

By Barbara Reeves Neal

Barbara Reeves Neal is a full-time arbitrator, mediator and special master with JAMS, based in Los Angeles. Ms. Neal, a graduate of Harvard Law School, has practiced as a prosecutor with the US Department of Justice, a partner with Morrison & Foerster, and Associate General Counsel of Southern California Edison and Edison International. Her practice at JAMS focuses on the areas of commercial, insurance, employment, unfair competition, and construction law.

As readers of this column know, my colleague Joel Grossman and I have repeatedly addressed the issues raised by AT&T Mobility LLC v. Concepcion.¹ Only last November, Joel addressed whether § 7 rights under the National Labor Relations Act or the "effective vindication" doctrine could be used to bar class action waivers. At the same time, the California Supreme Court and the Ninth Circuit handed down decisions exploring the application of Concepcion to arbitration agreements that purported to restrict rights held dear by California employees and consumers. The first, Sonic-Calabasas A, Inc. v. Moreno,² examined an arbitration agreement that took away an administrative hearing, the so-called "Berman hearing," available to an employee seeking unpaid wages. The second, Ferguson v. Corinthian Colleges, Inc.,³ examined the Broughton-Cruz rule, which has been used to exempt claims for "public injunctive relief" from arbitration. The third case, Chavarria v. Ralphs Grocery Co.,⁴ in which the court found Ralphs's arbitration agreement so one-sided as to "shock the conscience," is noteworthy because it reminds us that not everyone has gotten the message about the need for fairness in drafting employment arbitration agreements.

The discussion below will summarize the decisions and note some of the inconsistencies that still seem to exist between the California Supreme Court and the federal courts as they try to figure out Concepcion in the context of California employment law.

Sonic - Calabasas A, Inc. v. Moreno

Frank Moreno worked for Sonic-Calabasas A, Inc., an automobile dealership. As a condition of his employment, Moreno signed an arbitration agreement requiring that employment disputes be submitted to binding arbitration under the Federal Arbitration Act (FAA). The agreement excluded certain types of claims, including those before the California Department of Fair Employment and Housing, but not before the California Labor Commissioner.

Moreno left Sonic in 2006 and filed a claim for unpaid vacation time with the California Labor Commissioner. Sonic filed a motion to compel arbitration. The California Supreme Court held that Moreno could not be required to waive his right to a Berman hearing and that the waiver was unconscionable, but that the arbitration agreement could be enforced so long as arbitration was preceded by a Berman hearing if requested.

The United States Supreme Court granted review, vacated the judgment, and remanded the case for further consideration in light of its decision in Concepcion.

On remand, the California Supreme Court held:

The FAA preempts California law prohibiting the waiver of an administrative hearing before the California Labor Commissioner in an employment arbitration agreement.

Courts cannot impose unconscionability rules that interfere with arbitral efficiency, including rules forbidding waiver of administrative procedures that delay arbitration. The court's prior ruling that an arbitration agreement precluding a Berman hearing was per se unconscionable and unenforceable was overruled.

Unconscionability remains a valid defense to a petition to compel arbitration. As with any contract, the unconscionability inquiry requires a court to examine the totality of the agreement's substantive terms as well as the circumstances of its formation to determine whether the overall bargain was unreasonably one-sided.

The Court vacillated between writing an opinion about unconscionability as applied to this particular administrative procedure, and unconscionability with reference to arbitration agreements in general. (It does not seem to deal with the unconscionability doctrine as we know it with reference to contracts in general.) This makes it difficult to draw helpful standards for evaluating arbitration clauses from reading this opinion.

Nonetheless...