Don't Call It a Berman

Otto, LLC v. Kho, No. A147564 (D1d1 Aug. 21, 2017)

In Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013)—aka Sonic II—the California Supreme Court held that an arbitration agreement is unconscionable if it deprives an employee of the procedural advantages provided in the Labor Code wage claim procedures known as Berman hearings. The Berman procedures permit an employee to litigate claims for back wages in an informal administrative proceeding, with limited pleading, no formal rules of evidence, no discovery, fee shifting, and where the hearing officer has the power to assist the parties in cross examinations and to explain concepts and issues that the (often unrepresented) parties do not understand. If the employee is successful, the Labor Commissioner is tasked with enforcing the award and can defend it on appeal.

Of course, to not get sideways with federal arbitration law that says state procedures can’t discriminate against arbitration, Sonic II left open the possibility that some arbitration procedures could bake in the Berman procedures to a sufficient degree to avoid substantive unconscionability. Sonic II says that requires an “accessible and affordable arbitral forum.” Whether that is met here is what this case is about. 

The Court of Appeal does not read Sonic II to say that an arbitral procedure needs to have all of the hallmarks of a Berman hearing to avoid unconscionability. The procedure just needs to be accessible and affordable. The Court finds the standard met here. 

Some of the Berman procedures are definitely absent—there’s no provision for counsel to represent the employee in an appeal, no simplified case initiation procedures, and many of the arbitral procedures such as rules of evidence look more like litigation than a Berman hearing. But the court doesn’t find those differences sufficient to make arbitration inaccessible or unaffordable. Other Berman aspects absent are from the text of the agreement—such as a requirement that the employer pay the arbitration costs and that a prevailing employee obtain a fee award—but are nonetheless read into the agreement from various Labor Code provisions and case law. The failure to spell them out doesn’t make the agreement unconscionable either. 

The court also finds that the employer didn’t waive the right to arbitrate by waiting until the morning of the Berman hearing to petition to compel arbitration. Although the court finds it was discourteous and unprofessional for the employer to do so, the employee didn’t show prejudice by the delay, particularly since preparation for an informal Berman hearing is not likely to be particularly costly or time-consuming.
 
Reversed.

Sonic II was basically a clever effort to end-around the US Supreme Court’s preemption decision in AT&T v. Concepcion by substituting an as-applied unconscionability analysis for a per se one. But as the court here reads Sonic II, the as-applied rule will uphold any not completely oppressive employment arbitration procedure, without much regard to whether it incorporates many of the Berman protections. That is, the unconscionsbility standard in Sonic II, would be basically the same as the standard that applies to any arbitration clause in an employment contract. I’m not sure if that’s what the Sonic II court intended. Let’s see what happens.