The California Supreme Court ruled that employment arbitration agreements cannot be used to preclude an employee from seeking administrative relief from the Department of Labor Standards Enforcement for claims for unpaid wages. The Court held that such preclusion would violate California law and is, therefore, unconscionable. Notably, the Court also held that this unconscionable determination is not preempted by the Federal Arbitration Act (“FAA”).
Plaintiff Moreno is a former employee of Sonic-Calabasas. As a condition of employment, Moreno signed an agreement requiring him to arbitrate any and all disputes arising out of the employment relationship. The agreement exempted administrative proceedings before the EEOC/DFEH, but was silent as to administrative claims for unpaid wages. After Moreno’s employment ended, he filed a claim for alleged unpaid vacation wages with California’s Department of Labor Standards Enforcement (“DLSE”). Sonic-Calabasas filed a motion to compel arbitration, arguing that the arbitration agreement Moreno had signed required arbitration of the dispute.
The California Supreme Court has ruled that an arbitration agreement, even if otherwise enforceable, cannot be used to prevent an employee from pursuing administrative relief for unpaid wages through the DLSE. Thus, employees are entitled to an administrative hearing through the DLSE to resolve claims for unpaid wages. However, the Court held that in the event of an appeal of the DLSE’s decision (following the administrative hearing), that appeal can be compelled to arbitration pursuant to a valid and enforceable arbitration agreement.
The Supreme Court also addressed and rejected the employer’s argument that the FAA preempts California law and requires enforcement of the arbitration agreement in this context. In a lengthy discussion, the Court reasoned that its holding simply promoted “delaying” arbitration pending exhaustion of administrative remedies; it did not disfavor arbitration entirely.
Quite frankly, you would rather have an employee go to the Labor Board as opposed to Arbitration. Arbitration fees and representation costs are very expensive whereas with the Labor Board the process is faster and the Labor Commissioners do not charge a fee to decide the case. For those of you that are Potts & Associates clients our monthly retainer includes assistance with Labor Board matters so there are no additional charges.
As a final note, have your arbitration agreements reviewed to ensure they are up to date.