ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, November 4, 2013

Split California Supreme Court Allows Waiver of Hearing but Remands Case for Determination of Unconscionability

CA sc_sealIn 2011, the California Supreme Court decided Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659 (Sonic I).  In that case, the California Supreme Court ruled that it is contrary to public policy and unconscionable for an employer to require an employee, as a condition of employment, to waive the right to a Berman hearing, a dispute resolution forum established by the Legislature to assist employees in recovering wages owed.  In the California Supreme Court's view in 2011, that ruling was not preempted by the Federal Arbitration Act.  The result was not to invalidate the arbitration agreement at issue in the case but to permit arbitration to proceed only after the Berman hearing.

The U.S. Supreme Court vacated the 2011 opinion and remanded the case for reconsideration in light of AT&T Mobility LLC v. Concepcion (2011).  Upon reconsideration, the California Supreme Court issued this opinion on October 17th, in which it reversed Sonic I.  The Court now held that the FAA preempts California's state-law rule categorically prohibiting waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment.  However, the Court remanded the case back to the California Superior Court to determine whether the arbitration agreement was unconscionable because it is unreasonably favorable to the employer.

Four Justices joined in Justice Liu's opinion for the majority.  Justice Corrigan joined in the majority but offered a concurring opinion in which she remarked upon California's failure to articulate a clear standard for determining what makes an arbitration agreement unconscionable.  Justice Chin dissented, arguing that there was no reason for remand, since Moreno: 1) had forfeited the unconscionability claim by not raising it below and 2) could not meet the standard for unconscionability, which according to Justice Chin (and Justice Corrigan in her concurrence), applies only where the terms "shock the conscience."  


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