Arbitration of Unpaid Wage Claims – Court Rules that Arbitration Agreements May be Enforced, But Not To Preclude A “Berman Hearing”

Arbitration agreements are a fact of life these days, especially in the employment context.  To be enforceable, those agreements must be fair, both procedurally and substantively.

In a recent case, the California Supreme Court had occasion to consider whether an arbitration agreement could preclude a hearing before the Labor Commissioner on a claim for unpaid wages.  The court held that such an agreement was void as against public policy. However, once the hearing before the Labor Commissioner has taken place (it is commonly referred to as a “Berman hearing,” named after the legislator who sponsored the legislation that provides for it), a properly worded arbitration agreement can be used to decide follow-up procedures.

To quote the court:

“Under Labor Code section 98, et seq., an employee with a claim for unpaid wages has a right to seek an informal hearing in front of the Labor Commissioner, a so-called “Berman” hearing. If the employee obtains an award at the Berman hearing, the employer may request de novo review of the award in the superior court, which the statute calls an “appeal.”  . . . [T]he statutory regime of which the Berman hearing is part contains a number of provisions designed to assist employees during this process and to deter frivolous employer defenses. These provisions include the Labor Commissioner’s representation in the superior court of employees unable to afford counsel, the requirement that the employer post an undertaking in the amount of the award, and a one-way attorney fee provision that requires an employer that is unsuccessful in the appeal to pay the employee’s attorney fees."

The court continued:

"In this case, we must decide whether a provision in an arbitration agreement that the employee enters as a condition of employment requiring waiver of the option of a Berman hearing is contrary to public policy and unconscionable. We conclude that it is. . . . We nonetheless conclude that arbitration agreements may be enforced after a Berman hearing has taken place, i.e., the appeal from such a hearing may be made, pursuant to a valid arbitration agreement, in front of an arbitrator rather than in court.”

The court also ruled that this issue was not pre-empted by the Federal Arbitration Act.

The case is Sonic-Calabasas A, Inc. v. Moreno and a full copy is attached for your convenience.

Slote & Links regularly advises employers, unions, and individual employees about issues that arise in the workplace. Feel free to give us a call if you have questions or issues in this area.