Supreme Court Vacates California Ruling on Arbitration Agreements

Does an employee have the right to proceed before the California Labor Commission after signing an agreement to arbitrate all claims? That is a question the California Supreme Court will have to decide after the U.S. Supreme Court vacated its decision in Sonic-Calabasas A, Inc. v. Moreno and remanded the case for further consideration in light of AT&T Mobility v. Concepcion.

Moreno involved a former employee who had signed an agreement to arbitrate all disputes arising out of his employment. After he filed a wage claim with the California Labor Commission, his former employer petitioned the state court to compel arbitration of the claim based on the arbitration agreement. The court denied the petition, the court of appeals reversed, and the California Supreme Court ultimately found the provision “contrary to public policy and unconscionable” and held that employees have a right to an administrative wage hearing before being ordered to proceed to arbitration.

Two months later, the U.S. Supreme Court decided AT&T v. Concepcion, which addressed a mobile phone service agreement that required consumers to arbitrate disputes individually rather than through class action. Although California courts rendered the provision unenforceable under state law, the U.S. Supreme Court upheld the provision, holding that the Federal Arbitration Act preempts state law and generally requires enforcement of arbitration agreements unless they are unenforceable under contract law.

In light of this new decision, the employer in Moreno petitioned the U.S. Supreme Court to review its case, arguing that Concepcion dictated a different result than that reached by the California Supreme Court. The U.S. Supreme Court agreed, and on October 31, 2011 remanded the case back to the California Supreme Court, which now must decide whether wage proceedings before the California Labor Commission are inconsistent with the Federal Arbitration Act.