Business Law Employment Law Legal Topics

Wage Claims Are Not Subject to Mandatory Arbitration

It was close, but the California Supreme Court in Sonic-Calabasas A, Inc. v Moreno (.pdf) has ruled in favor of employees in a decision holding that arbitration agreements do not preempt administrative wage claim procedures. An employee who has a wage claim against his or her employer, but is subject to an arbitration agreement, can go first through the Labor Commissioner’s administrative processes before the employer can require arbitration.

The supreme court’s decision affects many employees because there are so many employers that include arbitration provisions in their employment agreements or handbooks. Those employers will now, as succinctly stated in Morrison & Foerster’s Client Alert (.pdf), be prevented from “avoiding the administrative process by invoking arbitration.” The Client Alert also highlights another implication of the decision, i.e., if the employee is successful at the administrative level, the employer will have to post a bond for the amount of the award to invoke arbitration.

This decision may be much ado about nothing, because plaintiffs are increasingly choosing arbitration as the forum in which to pursue wage and hour claims, particularly class actions. This may be due to the lack of a right to appeal or a perception that arbitration can provide an adequate alternate forum or that arbitrators are unlikely to deny class certification. In any event, employers really need to consider whether they should continue to use arbitration provisions in light of this emerging strategy.

For more on this case and related issues, check out CEB’s program Wage and Hour Compliance for Business Law Practitioners, available On Demand.  For everything you need to know about litigating wage and hour issues in California, go to CEB’s California Wage and Hour: Law and Litigation. Wage and hour issues, including those relating to class actions, are also covered in CEB’s Advising California Employers and Employees, chap 5.© The Regents of the University of California, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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