Sliding Scales and Points of Comparison

OTO, LLC v. Kho, No. S244630 (Cal. Aug. 29, 2019)

A little late on this one. As I noted in my write up of the Court of Appeal decision in this case, the result—upholding an arbitration clause in an employment contract in the face of an unconscionability challenge—felt a little sideways with a Supreme Court decision generally referred to as Sonic II. So I was hardly surprised by the grant of review.

These are all wage-and-hour cases where an employee is entitled to an administrative remedy called a Berman hearing, which is “designed to give claimants a ‘speedy, informal, and affordable method’ for resolving wage disputes.” Sonic II suggested, but did not decide, that the waiver of a Berman hearing in a wage and hour case would be substantively unconscionable unless the arbitration procedure itself incorporated procedural elements of a Berman hearing.

The agreement in this case foresees an arbitration that would be very much like a state court trial. Indeed, it provides for full discovery and adopts a number of law and motion and trial procedures that are not required in an arbitration. But it does not incorporate the elements that make a Berman hearing easy for an employee to litigate. As the Court explains in an opinion by Justice Corrigan, in isolation, a trial-like arbitration isn’t substantively unconscionable. But an analysis of substantive unconscionability needs to look to the parties’ options but for the arbitration as a point of comparison. Here, that’s not a court trial, it’s a Berman hearing.

The agreement here was a “paragon of prolixity”—“only slightly more than a page long but written in an extremely small font.” (The parties fight over whether it was 7 or 8.5 point.) It made numerous opaque and sometimes ambiguous references to legal jargon such that a lay person would have difficulty in deciphering key terms.” It was offered on a take it or leave it basis, the employee was given only a few minutes to sign, and he wasn’t even provided a copy. Given the overwhelming procedural unconscionability entailed, the Court—using a “sliding scale”—finds that although giving up the Berman procedures is close call on substantive unconscionability, it is enough to make the agreement unenforceable. 

Court of Appeal reversed.

Justice Chin dissents, at length. He dissented in Sonic II too. Among other things, he generally believes that the standard set up by the Court is discriminatory against arbitration and thus preempted by the FAA under the logic of U.S. Supreme Court cases like AT&T v. Concepcion. He also takes issue with the sliding scale approach, as applied here. Although a high degree of substantive unconscionability might require only a small amount of procedural unconscionability, he says the scale shouldn’t slide the other way. And Justice Chin also doesn’t agree that the contract is quite so procedurally unconscionable as the majority does.

Dumb Case, But Not a SLAPP

Supershuttle Int’l, Inc. v. Labor & Workforce Dev. Agency, No. B292054 (D2d8 Oct. 7, 2019)

Supershuttle won a case in Sacto Superior against various state labor agencies, which resulted in a ruling that some of its drivers were independent contractors, not employees. But then the Labor Commissioner served Supershuttle with a bunch of so-called Berman notices in administrative wage claims brought by drivers in LA. 

The whole Berman procedure  doesn’t apply to independent contractors. But the Labor Commissioner indicated she didn’t intend to be bound by the Sacto ruling. So Supershuttle filed an action in LA Superior, seeking dec relief that the agencies were collaterally estopped from re-litigating the IC/employee issue on behalf of the drivers in the Berman hearings.

The Commissioner filed an anti-SLAPP motion, which the trial court denied. The Commissioner appeals. 

This is all a little hard to follow, because Supershuttle’s moves are kind of procedurally screwy. As the Court points out, Supershuttle could have just argued collateral estoppel in the trial de novo it gets in superior court on appeal of an adverse Berman ruling. So it’s not clear why this declaratory relief action is procedurally legit. (The collateral estoppel point also seems a little fraught, given that the drivers who are making the wage claims weren’t parties to the Sacto case. “Due process prohibits estopping [non-parties to prior cases] despite one or more existing adjudications of the identical issue which stand squarely against their position.” Blonder-Tongue Labs., Inc. v. Univ. of Illinois Found., 402 U.S. 313, 329 (1971).)

In any event, just because a case is dumb or procedurally flawed doesn’t make it a SLAPP. Here, the action arises from and challenges the Commissioner’s official quasi-judicial act of declining to apply preclusive effect to the prior judgment. Although official acts of government bodies are sometimes preceded or conveyed in communications, the acts themselves are not exercises of speech or petitioning. They are thus not subject to anti-SLAPP treatment. The Supreme Court was pretty clear on that in both Park and City of Montebello.

Affirmed.

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.