California Supreme Court: Arbitration Provision Waiving Labor Commissioner Hearing Not Enforceable

California Labor Code section 98 et seq., grants an employee with a claim for unpaid wages to seek a hearing before the California Labor Commissioner. Traditionally this has been called a "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.

In Sonic-Calabasas A, Inc. v. Moreno the California Supreme Court was asked to determine if an arbitration provision requiring an employee to waive the option of a Berman hearing is contrary to public policy and is unconscionable. On February 24, 2011 the Supreme Court ruled that any provision requiring an employee to waive the option of a Berman hearing is not enforceable. Such a waiver is both a violation of public policy and unconscionable.

The Court indicated that the Berman administrative hearing process affords California employees many advantages, which are not available in arbitration, such as: speedy and inexpensive resolution to wage disputes; assistance by the Labor Commissioner in obtaining the award; safe guards against frivolous defenses by employers, the enforceability of any award, assistance by the Labor Commissioner in enforcing an award; and one-way fee shifting for attorneys fees to be posed on employers who unsuccessfully appeals.

The Court further based its decision on the fact that the lawful payment of wages to California employees is not simply an individual right but an important public policy goal.

In determining that Berman waivers are unconscionable the Court concluded:

In sum, rather than being justified by "legitimate commercial needs" (see Armendariz, supra, 24 Cal.4th at p. 117), the main purpose of the Berman waiver appears to be for employers to gain an advantage in the dispute resolution process by eliminating the statutory advantages accorded to employees designed to make that process fairer and more efficient. We conclude the waiver is markedly one-sided and therefore substantively unconscionable.

However, the Court held that an appeal from a Berman hearing award, can be held before an arbitrator, rather than the Superior Court.

The Court also rejected the employer's argument that the Federal Arbitration Act preempts California law and requires enforcement of the arbitration agreement.

Double Premium Pay for Missed Meal & Rest Breaks

Labor Code section 226.7 requires an employer who fails to provide an employee with a meal or rest period to pay that employee one additional hour of pay (or premium payment) "for each work day that the meal or rest period is not provided."  Attorneys have long questioned whether this statute authorizes one premium payment per work day or two premium payments per work day – one for failure to provide a meal period and another for failure to provide a rest period.

Last week the California Second District Court of Appeals answered this question in a decision that will potentially double employer exposure in meal and rest break litigation.  In United Parcel Service, Inc. v. Superior Court the Court held section 226.7 permits up to two premium payments per work day.

The Count based its decision on federal case law, IWC Wage Orders, the specific language of section 226.7, and legislative history:

In short, we conclude, based upon the wording of section 226.7, subdivision (b), the legislative and administrative history of the statute and IWC wage orders, the public policy behind the statute and wage orders, and also the principle that we are to construe section 266.7 broadly in favor of protecting employees, that the employees in this case may recover up to two additional hours of pay on a single work day for meal period and rest period violations – one for failure to provide a meal period and another for failure to provide a rest period.

This case should serve as a cautionary tale for all California employers.  Employers must make sure they are in strict complaince with the meal and rest break requirements.