The California Supreme Court recently addressed whether an employer can require an employee, as part of an arbitration agreement that is a condition of employment, to waive his or her right to a so-called "Berman" hearing under Labor Code section 98 et seq. In Sonic-Calabasas A, Inc. v. Moreno, the Court held that an employer cannot require an employee to waive his or her right to a "Berman" hearing as a condition of employment (whether as part of an arbitration agreement or otherwise) because such required waiver is unconscionable and violates public policy.
Under Labor Code section 98 et seq., an employee with a claim for unpaid wages has a right to seek an informal hearing before 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." In the Sonic-Calabasas case, the court explained at length that the statutory scheme encompassing the Berman hearing 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 emphasized these protections make clear that lawful payment of wages owed is not merely an individual right, but an important public policy goal. The Court concluded that the employee's statutory right to seek a Berman hearing is an unwaivable right that an employer cannot compel an employee to relinquish as a condition of employment. While one may waive a right intended solely for his or her benefit, "a law established for a public reason cannot be contravened by a private agreement." The statutory protections of the Berman hearing are designed to give employees a means to reduce costs and risks of pursuing a wage claim, recognizing that such costs and risks could cause employees to forego such claims altogether.
Finally, the Court stated that its holding is not preempted by the Federal Arbitration Act. The Court's conclusion that Berman waivers are contrary to public policy does not discriminate against arbitration agreements. The holding did not disfavor arbitration agreements; it also did not permit them to "harbor terms, conditions and practices that undermine public policy." Thus, the Court held that arbitration agreements may be enforced after a Berman hearing has taken place; in other words, that the "appeal" from such a hearing may be made, pursuant to a valid arbitration agreement, before an arbitrator rather than in court.