October 17, 2013
This morning, the California Supreme Court issued its much-anticipated opinion about arbitration law in Sonic-Calabasas A v. Moreno, an appeal which concerned the impact of the United States Supreme Court’s landmark arbitration decisions in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant on California arbitration law.
The Sonic-Calabasas opinion recognizes that Concepcion and American Express interpret the Federal Arbitration Act (FAA) in a way that cannot be squared with pre-Concepcion limits the California Supreme Court placed on the enforcement of arbitration agreements. For example, the Court concludes that the FAA now preempts the Court’s prior rule categorically prohibiting an arbitration agreement from waiving an employee’s administrative hearing on wage-related claims before the Labor Commissioner and requiring the wage dispute to be resolved through arbitration.
Sonic-Calabasas’ majority opinion left open the possibility that an arbitration agreement’s waiver of such an administrative hearing may be deemed unconscionable, and therefore unenforceable, on a case-by-case basis, and permitted one factor in that analysis to be whether the agreement resulted in the employee entirely surrendering the protections associated with the administrative process such that the arbitral process would fail to provide the employee with an “accessible and affordable” forum for resolving wage disputes.
It will be interesting to see whether the United States Supreme Court rejects this unconscionability standard in the future. After all, Justice Chin’s dissenting opinion in Sonic-Calabasas takes the position that this unconscionability standard cannot be reconciled with Concepcion and American Express, and that the standard is therefore preempted under the FAA. His dissent may sound a strong chord with the U.S. Supreme Court, which ultimately has the final word on matters of FAA preemption and has recently shown great interest in eliminating judicially-created arbitration standards that fail to enforce arbitration agreements according to their terms.
The California Supreme Court will have another opportunity to address Concepcion and American Express’ effect on California law in other pending arbitrations appeals like Sanchez v. Valencia Holding Co. and Iskanian v. CLS Transportation of Los Angeles. Those appeals are fully briefed and awaiting oral argument, although the Court may ask the parties to file supplemental briefs addressing the potential impact of its Sonic-Calabasas opinion on those pending appeals.
[Full disclosure: Horvitz & Levy has filed amicus briefs in support of the parties who moved to compel arbitration in Sonic-Calabasas, Sanchez, and Iskanian and presented oral argument before the California Supreme Court in support of the employer in Sonic-Calabasas.]