California Supreme Court Delays Decision in Key Arbitration Case

On June 21, the California Supreme Court vacated the submission on Sonic-Calabasas A, Inc. v. Moreno and ordered that the parties file supplemental briefs to address the U.S. Supreme Court’s recent decision in American Express Co. v. Italian Colors Restaurant. In that case, the high court confirmed its long-standing rule that arbitration clauses under the Federal Arbitration Act (FAA) will be enforced as a matter of contract in accordance with the parties’ agreement, unless Congress has evidenced an intent to override the FAA.Sonic-Calabasas A, Inc. v. Moreno, No. S174475, California Supreme Court (June 21, 2013).

The underlying case was brought by Frank Moreno, an employee of Sonic-Calabasas A, Inc. As a condition of employment, Moreno signed an agreement that required both parties to submit all employment disputes “which would otherwise require or allow resort to any court or other governmental dispute resolution forum” to binding arbitration. After ending his employment with Sonic, Moreno filed an administrative claim for unpaid vacation time and “waiting time” penalties and sought a hearing on the matter before the State Labor Commissioner (known as a “Berman” hearing). Sonic petitioned the trial court to compel arbitration under the terms of the agreement. The trial judge refused to order arbitration. Sonic appealed this decision to the California Court of Appeal, which ordered the matter to be arbitrated. Moreno then sought review before the California Supreme Court.

In February 2011, the California Supreme Court sided with Moreno and reversed the Court of Appeal’s decision. The court held that an employee who has a wage claim against his or her employer has the right to an administrative proceeding before the employee can be compelled to use arbitration, despite the fact that there is a binding arbitration agreement. (For more on the 2011 ruling, click here.)

The case was appealed to the U.S. Supreme Court, which returned the case to the California Supreme Court in light of its decision in AT&T Mobility LLC v. Concepcion. In Concepcion, the U.S. Supreme Court held that state law and public policy should not be applied in a manner that disfavors arbitration and that the Federal Arbitration Act (FAA) will preempt such state law or public policy.

The California Supreme Court’s decision to receive additional briefing on the possible significance of the U.S. Supreme Court opinion in American Express Co. is generally a favorable development indicating that the California high court may likely find that the statutory protections contained in Labor Commissioner’s Berman hearing process do not trump the FAA’s mandate that arbitration agreements are to be enforced. A ruling from the California Supreme Court in Sonic is now expected in October of this year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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