Opinion ID: 2356414
Heading Depth: 3
Heading Rank: 3

Heading: Does the Waiver of a Berman Hearing Violate Public Policy and Is It Unconscionable?

Text: (11) In determining whether a Berman waiver violates public policy, we first review the law related to mandatory employment arbitration agreements, i.e., arbitration agreements that are conditions of new or continuing employment. In Armendariz, supra, 24 Cal.4th 83, we concluded that such agreements were enforceable, provided they did not contain features that were contrary to public policy or unconscionable. ( Id. at p. 99.) We concluded that arbitration agreements cannot be made to serve as a vehicle for the waiver of [unwaivable] statutory rights, such as rights under the California Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.). To ensure that such waiver did not occur, we held that arbitrations addressing such statutory rights would be subject to certain minimal requirements. As we later summarized these: (1) the arbitration agreement may not limit the damages normally available under the statute ( Armendariz, supra, 24 Cal.4th at p. 103); (2) there must be discovery `sufficient to adequately arbitrate their statutory claim' ( id. at p. 106); (3) there must be a written arbitration decision and judicial review `sufficient to ensure the arbitrators comply with the requirements of the statute' ( ibid. ); and (4) the employer must `pay all types of costs that are unique to arbitration' ( id. at p. 113). ( Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076 [130 Cal.Rptr.2d 892, 63 P.3d 979] ( Little ).) We did not hold that the above requirements were the only conditions that public policy could place on arbitration agreements, and have since recognized other limitations. (See Gentry v. Superior Court (2007) 42 Cal.4th 443, 463 [64 Cal.Rptr.3d 773, 165 P.3d 556] ( Gentry ) [prohibition of class arbitration contrary to public policy in some cases].) Here we must decide whether an employee in the context of an arbitration agreement can waive the right to a Berman hearing and posthearing protections. In concluding that such rights may be waived, the Court of Appeal first acknowledged, correctly, that the right to vacation pay was a vested right and therefore unwaivable under section 227.3. [3] (See Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 780, 784 [183 Cal.Rptr. 846, 647 P.2d 122].) Having established the vested right to vacation pay, the court framed its inquiry as follows: We must decide whether the absence of these statutory protections will significantly impair Moreno's ability to vindicate his wage rights in arbitration. According to Gentry . . ., `Armendariz makes clear that for public policy reasons we will not enforce provisions contained within arbitration agreements that pose significant obstacles to the vindication of employees' statutory rights.' ( Gentry, supra, 42 Cal.4th at p. 463, fn. 7.) The court then reasoned that the Berman hearing and post-Berman protections would not significantly impair Moreno's ability to vindicate his right to vacation pay through arbitration. Significantly, all of these statutory protections are only available if and when an employer appeals from an adverse administrative ruling. Obviously, it is impossible to determine whether Moreno will prevail at the administrative hearing. Accordingly, it is impossible to determine whether Moreno will lose any statutory protections if the Berman waiver is enforced. Unless enforcing the Berman waiver will pose significant obstacles to the vindication of Moreno's statutory wage rights, Armendariz does not require us to invalidate the waiver. At most, enforcing the Berman waiver will eliminate the possibility of receiving statutory protections that are contingent on an administrative ruling in Moreno's favor. We are not persuaded that the loss of what are merely contingent benefits can be equated with the significant obstacle to the vindication of statutory rights that Armendariz sought to address. The Court of Appeal elaborated: [T]he record contains no evidence that Moreno or any other wage claimant lacks the knowledge, skills, abilities, or resources to vindicate his or her statutory wage rights in an arbitral forum. Even assuming the arbitral process is more difficult to navigate than the Berman process, there is nothing in this record to indicate that enforcing a Berman waiver will significantly impair the claimant's ability to vindicate his or her statutory rights. In short, Moreno has failed to demonstrate either the inadequacy of the arbitral forum provided by his arbitration agreement or the existence of a factual basis to invalidate all Berman waivers as against public policy. (12) In the present case, however, the question is not whether, in a court's judgment, the absence of statutory protections afforded by the Berman hearing and the potential post-Berman protections would significantly impair Moreno's ability to vindicate his unwaivable right to vacation pay in arbitration. Rather, the question is whether the employee's statutory right to seek a Berman hearing, with all the possible protections that follow from it, is itself an unwaivable right that an employee cannot be compelled to relinquish as a condition of employment. We conclude that it is. (13) The question whether the waiver of a particular statutory protection is contrary to public policy essentially entails discerning legislative intent. Sometimes statutory rights are made expressly unwaivable. (See § 1194 [right to recover minimum wage notwithstanding any agreement]; Civ. Code, § 1751 [waiver of rights under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) unenforceable and void].) In other cases, whether a statute can be waived may be implied from the context and purpose of the statute. Thus, in Armendariz, we deduced the unwaivability of FEHA rights to redress nondiscrimination from the fact that it incorporated this state's strong public policy against various types of employment discrimination. ( Armendariz, supra, 24 Cal.4th at pp. 100-101.) (14) There is no question that the lawful payment of wages owed is not merely an individual right but an important public policy goal. As one appellate court correctly summarized the matter: Civil Code section 3513 provides, in pertinent part, that: `[a]nyone may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.' [¶] The determination of whether a particular statute is for public or private benefit is for the court in each case (1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 645, p. 586). The provisions of the Labor Code, particularly those directed toward the payment of wages to employees entitled to be paid, were established to protect the workers and hence have a public purpose. As was pointed out in In re Trombley (1948) 31 Cal.2d 801, 809 [193 P.2d 734]: `[i]t has long been recognized that wages are not ordinary debts, that they may be preferred over other claims, and that, because of the economic position of the average worker and, in particular, his dependence on wages for the necessities of life for himself and his family, it is essential to the public welfare that he receive his pay when it is due.' (Also see Kerr's Catering Service v. Department of Industrial Relations (1962) 57 Cal.2d 319, 326-327 [19 Cal.Rptr. 492, 369 P.2d 20].) ( Henry v. Amrol, Inc. (1990) 222 Cal.App.3d Supp. 1, 6 [272 Cal.Rptr. 134].) Although the statutory protections that the Berman hearing and the posthearing procedures afford employees were added piecemeal over a number of years, their common purpose is evident: Given the dependence of the average worker on prompt payment of wages, the Legislature has devised the Berman hearing and posthearing process as a means of affording an employee with a meritorious wage claim certain advantages, chiefly designed to reduce the costs and risks of pursuing a wage claim, recognizing that such costs and risks could prevent a theoretical right from becoming a reality. These procedures, including the employer undertaking and the one-way fee provision, also deter employers from unjustifiably prolonging a wage dispute by filing an unmeritorious appeal. This statutory regime therefore furthers the important and long-recognized public purpose of ensuring that workers are paid wages owed. The public benefit of the Berman procedures, therefore, is not merely incidental to the legislation's primary purpose but in fact central to that purpose. Nor can there be any doubt that permitting employers to require employees, as a condition of employment, to waive their right to a Berman hearing would seriously undermine the efficacy of the Berman hearing statutes and hence thwart the public purpose behind the statutes. Sonic argues in effect that even if a nonarbitration clause that required a Berman hearing waiver is contrary to public policy, an arbitration clause containing the same waiver would not be, because arbitration offers the same or similar advantages as does the Berman hearing process. We disagree. As the previous part of this opinion makes clear, the choice is not between a Berman hearing and arbitration, because a person subject to binding arbitration and eligible for a Berman hearing will still be subject to binding arbitration if the employer appeals the Berman hearing award. The choice is rather between arbitration that is or is not preceded by a Berman hearing. As discussed above, there are considerable advantages for employees to undergo the Berman hearing process before arbitration. First, the Labor Commissioner's staff is directed to settle claims either informally or through a conference between the parties. (DLSE, Policies and Procedures for Wage Claim Processing, supra, at pp. 2-3.) If no settlement is obtained, a Berman hearing is to be conducted in an informal setting preserving the rights of the parties (§ 98, subd. (a)), conducted, as explained above, without discovery or formal rules of evidence, and with the hearing officer's assistance in cross-examining witnesses and understanding terms and issues. It is thus structured so that an employee can avail himself or herself of the process without the need of counsel. An employee who is successful at a Berman hearing will have the resources of the Labor Commissioner behind him or her to ensure that the judgment is enforced. (§ 98.2, subd. (i).) If the employer appeals, then the employer must post an undertaking in the amount of the award to ensure enforcement of the judgment if the employee ultimately prevails. (§ 98.2, subd. (b).) An employee unable to afford counsel will be represented by the Labor Commissioner if the employer requests arbitration and the employee does not contest the commissioner's award. (§ 98.4.) Moreover, an employee in this circumstance will not be liable for the employer's attorney fees if the employer prevails on appeal. (§ 98.2, subd. (c).) In contrast, arbitration, notwithstanding its advantages as a reasonably expeditious means of resolving disputes, still generally bears the hallmark of a formal legal proceeding in which representation by counsel is necessary or at least highly advantageous. The arbitration in question here, for example, is to be conducted by a retired California Superior Court Judge and to the extent applicable in civil actions in California courts, the following shall apply and be observed: all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure section 631.8. The arbitrator's award at either party's request will be reviewed by a second arbitrator who will as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment following court trial. A wage claimant undergoing arbitration will need the same kind of legal representation as if he or she were going to superior court. Thus, an employee going directly to arbitration will lose a number of benefits and advantages. He or she will not benefit from the Labor Commissioner's settlement efforts and expertise. He or she must pay for his or her own attorney whether or not he or she is able to afford itan attorney who may not have the expertise of the Labor Commissioner. Moreover, what matters to the employee is not a favorable arbitration award per se but the enforcement of that award, and an employee going directly to arbitration will have no special advantage obtaining such enforcement. Nor is there any guaranty that the employee will not be responsible for any successful employer's attorney fees, for under section 218.5, an employee who proceeds directly against an employer with a wage claim not preceded by a Berman hearing will be liable for such fees if the employer prevails on appeal. [4] In short, the Berman hearing process, even when followed by binding arbitration, provides on the whole substantially lower costs and risks to the employee, greater deterrence of frivolous employer claims, and greater assurance that awards will be collected, than does the binding arbitration process alone. [5] (15) Sonic argues that we can construe the arbitration agreement, as we did in Armendariz, to provide protections equivalent to those available during and after a Berman hearing. The argument is without merit. In Armendariz, we recognized that in some cases, terms in an arbitration agreement that are unconscionable or contrary to public policy may be severed and the rest of the agreement enforced. ( Armendariz, supra, 24 Cal.4th at pp. 123-124; see Little, supra, 29 Cal.4th at pp. 1075-1076.) We also construed an arbitration agreement that was silent about some matters, such as costs, so as to make it conform to public policy. ( Armendariz, supra, at p. 113.) Here, Sonic does not ask us to sever an unlawful provision or to construe a provision in a manner that renders it lawful, but rather to, in effect, reform a statute. As reviewed above, the statutory protections pursuant to sections 98.2 and 98.4 are contingent on the Labor Commissioner's findings in a Berman hearing that an employee's claim is meritorious. For this court to order the Labor Commissioner or arbitrator to provide those protections when there has been no prior favorable determination in a Berman hearing is contrary to statute and beyond our authority. [6] Contrary to Sonic's suggestion, and that of the dissent, the fact that the Berman hearing is merely an option for employees, who may also go directly to court (§ 218), does not alter the nonwaivability of the Berman hearing protections, for it is precisely that option which an employer may not foreclose in a predispute agreement. The purpose of the Berman hearing statutes is to empower wage claimants by giving them access to a Berman hearing with all of its advantages. Allowing an employee the freedom to choose whether to resort to a Berman hearing when a wage claim arises, after evaluating in light of the particular circumstances whether such a hearing is advantageous, is wholly consistent with the public policy behind the Berman hearing statutes. A requirement that the employee surrender the option of a Berman hearing as a condition of employment is not. As we recognized in Armendariz, our concern is with the impermissible waiver of certain rights and protections as a condition of employment before a dispute has arisen. (See Armendariz, supra, 24 Cal.4th at p. 103, fn. 8.) [7] We therefore find the argument that, because the Legislature intended an employee to have the option of a Berman hearing when a wage claim arises, the Legislature also must have intended to permit employers to require employees to waive that option as a condition of employment, to be unpersuasive. Sonic finds support for the Court of Appeal's holding in Gentry, in which we concluded that some class arbitration waivers are unlawful but declined to categorically declare invalid all such waivers. Gentry is readily distinguishable. Class arbitration is a judicially devised procedure. We acknowledged that class actions or arbitrations were not categorically necessary to vindicate statutory rights, and that under some circumstances, those rights could be adequately enforced by individual action. ( Gentry, supra, 42 Cal.4th at pp. 462, 464.) We further recognized the well-established principle that `[t]rial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action ....' ( Id. at pp. 463-464, quoting inder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435 [97 Cal.Rptr.2d 179, 2 P.3d 27].) In the present case, in contrast, the Berman hearing and posthearing procedures have been mandated by the Legislature to be available to all employees with wage complaints that fall within the scope of the statute. As discussed above, that mandate represents a legislative judgment about the special protections and procedural rights that should be afforded to persons with wage claims in order to ensure that such claims be fairly resolved. The judgment that such a waiver is contrary to public policy is not contingent upon the determination of a trial court, during a petition to compel arbitration, about whether and to what extent a particular wage claimant will benefit from the Berman hearing process. Indeed, as the Court of Appeal acknowledged, the trial court at that stage is in no position to determine such matters. Moreover, notwithstanding the Court of Appeal's and Sonic's suggestions, Berman hearings and posthearing protections are by their own terms made available to all statutorily eligible wage earners, not merely low-wage workers. This legislative determination cannot be modified by a judicial determination that employees earning something more than a low wage do not really require these protections and therefore can be required to waive them as a condition of employment. Sonic suggests that the fact that Moreno had been earning over $100,000 at the time he left his employment means that he would not be in the class of persons unable to afford counsel and eligible for representation by the Labor Commissioner in the event of an appeal. But extending this suggestion into an argument that a Berman waiver as applied to Moreno is not contrary to public policy suffers from at least three flaws. First, as Moreno's counsel points out, there is nothing in the record regarding Moreno's present financial condition. Second, the determination of whether a claimant is unable to afford counsel is vested solely in the Labor Commissioner under section 98.4, and a superior court deciding a petition to compel arbitration is in no position to guess what the commissioner's determination will be. Third and most fundamentally, even if it could be determined that Moreno's financial condition was such that he would not be represented by the Labor Commissioner, the Berman statutes provide, as explained, many advantages to all wage claimants, not only indigent ones. These include the informal hearing itself, the commissioner's settlement efforts, the bonding requirement ensuring that wage awards to employees actually be enforced, and the one-way fee-shifting provision discouraging frivolous employer appeals and encouraging the pursuit of meritorious claims without fear of financial penalty. [8] We therefore conclude the Berman waiver at issue here is contrary to public policy. [9] (16) Our conclusion is the same if we analyze the issue in terms of unconscionability. [10] One common formulation of unconscionability is that it refers to `an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.' ( Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170, and authorities cited therein.) As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, `which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.' ( Little, supra, 29 Cal.4th at p. 1071.) (17) Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided. One such form, as in Armendariz, is the arbitration agreement's lack of a `modicum of bilaterality,' wherein the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration. ( Armendariz, supra, 24 Cal.4th at p. 119.) Another kind of substantively unconscionable provision occurs when the party imposing arbitration mandates a post-arbitration proceeding, either judicial or arbitral, wholly or largely to its benefit at the expense of the party on which the arbitration is imposed. ( Little, supra, 29 Cal.4th at pp. 1071-1072.) (18) In determining unconscionability, our inquiry is into whether a contract provision was unconscionable at the time it was made. (Civ. Code, § 1670.5, subd. (a).) (19) Here, the arbitration agreement was a contract of adhesion indisputably imposed as a condition of employment. Moreover, we have recognized that contract terms imposed as a condition of employment are particularly prone to procedural unconscionability. [I]n the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement. ( Armendariz, supra, 24 Cal.4th at p. 115.) Moreover, many employees may not give careful scrutiny to routine personnel documents that employers ask them to sign. (See Gentry, supra, 42 Cal.4th at p. 471.) (20) Furthermore, for reasons suggested above, significant substantive unconscionability is also present. As explained, Berman hearing and posthearing procedures were designed to provide wage claimants with meritorious claims unique protections that lower the costs and risks of pursuing such claims, leveling a playing field that generally favors employers with greater resources and bargaining power. Requiring employees to forgo these protections as a condition of employment can only benefit the employer at the expense of the employee. Nor can we say, as also explained, that the benefits the employee gains from arbitration compensates for what he or she loses by forgoing the option of a Berman hearing. 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. This substantive unconscionability, together with the significant element of procedural unconscionability, leads to the conclusion that the Berman waiver in the arbitration agreement at issue here is unconscionable. (21) We note that the public policy and unconscionability defenses, albeit similar in some ways, are different in important respects. A public policy defense is concerned with the relationship of the contract to society as a whole, and targets contractual provisions that undermine a clear public policy, such as an unwaivable statutory right designed to accomplish a public purpose. (See Armendariz, supra, 24 Cal.4th at pp. 100-101.) Unconscionability is concerned with the relationship between the contracting parties and one-sided terms ( id. at p. 114), such that consent in any real sense appears to be lacking. Contracts can be contrary to public policy but not unconscionable (see Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 287-288 [52 Cal.Rptr.2d 115, 914 P.2d 193] [provision in a negotiated collective bargaining contract conflicts with a statute and is therefore unenforceable]) and vice versa (see A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 493 [186 Cal.Rptr. 114] [warranty disclaimer and exclusion of consequential damages in particular commercial contract unconscionable]). But there is sometimes an overlap between these two defenses to contract enforcement. (22) Such is the case here. On the one hand, to permit employers to require employees to waive the right to a Berman hearing as a condition of employment would gravely undermine the public policy behind the Berman hearing statutes, as discussed above. On the other hand, because the Berman hearing statutes accomplish their public policy goal of ensuring prompt payment of wages by according employees special advantages in their effort to obtain such payment, a provision in a contract of adhesion that requires the employee to surrender such advantages as a condition of employment is oppressive and one sided, and therefore unconscionable. [11]