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Sonic-Calabasas A, Inc. v. Moreno

May 29, 2009


APPEAL from an order of the Superior Court of Los Angeles County, Aurelio N. Munoz, Judge. Reversed. (Los Angeles County Super. Ct. No. BS107161).

The opinion of the court was delivered by: Suzukawa, J.


In this case we consider whether an admittedly valid employment arbitration agreement that is governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq. (FAA)) may be enforced to dismiss a former employee‟s administrative wage claim against his former employer for unpaid vacation pay. The former employee, respondent Frank Moreno, filed an administrative wage claim with the Labor Commissioner according to the "Berman" process provided in Labor Code section 98 et seq.*fn1 (Added by Stats. 1976, ch. 1190, §§ 4-11, pp. 5368-5371.) Moreno‟s former employer, appellant Sonic-Calabasas A, Inc. (Sonic), petitioned the superior court to dismiss the Berman proceeding and compel arbitration in accordance with the parties‟ arbitration agreement, which Moreno conceded was a valid agreement. The superior court denied the petition as premature. We reverse the order denying Sonic‟s motion to compel arbitration.

Sonic contends that the Labor Commissioner‟s jurisdiction over this statutory wage claim was divested by the FAA. Sonic cites as controlling authority the United States Supreme Court‟s recent decision in Preston v. Ferrer (2008) ___ U.S. ___ [128 S.Ct. 978] (Preston), in which the Labor Commissioner‟s original and exclusive jurisdiction was held to be divested by the FAA with regard to a contract dispute arising under the Talent Agencies Act (§ 1700 et seq.) (TAA). Alternatively, Sonic argues that even if the minimum requirements for arbitration set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz) apply to this statutory wage claim, a Berman hearing is not a prerequisite to arbitration, either under Armendariz or Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry).

We conclude that Moreno waived his right to a Berman proceeding and enforcement of that waiver is not barred by Armendariz or Gentry.


The facts are undisputed. Frank Moreno is a former employee of Sonic, which owns and operates an automobile dealership. As a condition of his employment with Sonic, Moreno signed a predispute agreement that required both parties to submit their employment disputes to "binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec. 1280 et seq. . . .)." By its terms, the arbitration agreement applied to "all disputes that may arise out of the employment context . . . that either [party] may have against the other which would otherwise require or allow resort to any court or other governmental dispute resolution forum[,] . . . whether based on tort, contract, statutory, or equitable law, or otherwise."

At some point, Moreno left his position with Sonic. In December 2006, Moreno filed an administrative wage claim with the Labor Commissioner for unpaid vacation pay pursuant to section 98 et seq. Moreno alleged that he was entitled to unpaid "[v]acation wages for 63 days earned 7/15/02 to 7/15/06 at the rate of $441.29 per day."

In February 2007, Sonic petitioned the superior court to compel arbitration of the wage claim and dismiss the pending administrative action. (Code Civ. Proc., § 1281.2.) The parties agreed that the arbitration agreement applied to the wage claim, but disagreed as to whether the arbitration agreement contained a waiver of the right to a Berman proceeding (Berman waiver), which would bar Moreno‟s administrative wage claim under section 98 et seq. Sonic argued that such a waiver was created by the provision of the arbitration agreement requiring arbitration of all employment disputes that could otherwise be brought in any judicial "or other governmental dispute resolution forum."

The Labor Commissioner intervened below on behalf of Moreno (§ 98.5), who adopted the Labor Commissioner‟s arguments. The Labor Commissioner argued that nothing in the arbitration agreement precluded Moreno from filing an administrative wage claim under section 98 et seq., which could then be followed by arbitration in lieu of the de novo appeal to superior court that is otherwise available under section 98.2.

The Labor Commissioner argued against bypassing the Berman process, claiming that, under Armendariz, it is a necessary prerequisite to arbitration. The rationale for this conclusion was that, in the event the employee prevailed in the Berman process and the employer then moved to compel arbitration, the arbitrator would be required to provide the employee with all of the protections that would otherwise be available if the employer had sought a de novo appeal in superior court under section 98.2. However, the Labor Commissioner failed to identify any statutory authority to support this conclusion.

The superior court denied the petition to compel arbitration as premature. Citing Armendariz, the superior court stated that, as a matter of "basic public policy . . . until there has been the preliminary non-binding hearing and decision by the Labor Commissioner, the arbitration provisions of the employment contract are unenforceable, and any petition to compel arbitration is premature and must be denied."

Sonic appealed from the order of denial. (Code Civ. Proc., § 1294, subd. (a) [order denying a motion to compel arbitration is appealable].) During the briefing period, the United States Supreme Court decided Preston, which held that the Labor Commissioner‟s original and exclusive jurisdiction was divested by the FAA with regard to a contract dispute arising under the TAA. The Labor Commissioner has not filed a respondent‟s brief in this appeal.


"A petition to compel arbitration is resolved in a summary proceeding with the trial court sitting as trier of fact and weighing declarations, documentary evidence and any oral testimony. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) Pursuant to Code of Civil Procedure section 1281.2, unless the petitioner has waived arbitration, grounds exist for revocation of the agreement, or a party to the arbitration agreement is also a party to a pending matter with a third party and there is a possibility of conflicting rulings on a common issue, the trial court "shall order‟ the parties to arbitrate the controversy "if it determines that an agreement to arbitrate the controversy exists.‟" (Amalgamated Transit Union Local 1277 v. Los Angeles County Metropolitan Transportation Authority (2003) 107 Cal.App.4th 673, 684.) """Whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment where no conflicting extrinsic evidence in aid of interpretation was introduced in the trial court."‟" (Id. at p. 685.)

As there were no disputed facts below, we will exercise our independent judgment on appeal.

I. The Right to Wages and the Berman Hearing Process

In Cuadra v. Millan (1998) 17 Cal.4th 855, 858-859 (Cuadra) (disapproved on other grounds in Samuels v. Mix (1999) 22 Cal.4th 1, 16, fn. 4), the California Supreme Court discussed the employee‟s right to receive earned wages and engage in the Berman hearing process as follows: "The wage rights of an employee may be provided for in the employment contract between the employee and the employer, whether oral or written, including a collective bargaining agreement. The employee‟s wage rights are also closely regulated by statute: The Labor Code prescribes such matters as the time and manner of paying wages, minimum wage requirements, and mandatory overtime pay; for certain industries and occupations, minimum wages and overtime pay are also prescribed by administrative regulations known as wage orders, issued by the Industrial Welfare Commission pursuant to statutory authority (see Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 700-703). [Fn. omitted.]

"If an employer fails to pay wages in the amount, time or manner required by contract or by statute, the employee has two principal options. The employee may seek judicial relief by filing an ordinary civil action against the employer for breach of contract and/or for the wages prescribed by statute. (§§ 218, 1194.) Or the employee may seek administrative relief by filing a wage claim with the commissioner pursuant to a special statutory scheme codified in sections 98 to 98.8. The latter option was added by legislation enacted in 1976 (Stats. 1976, ch. 1190, §§ 4-11, pp. 5368-5371) and is commonly known as the "Berman" hearing procedure after the name of its sponsor.[*fn2 ]

"The Berman hearing procedure is designed to provide a speedy, informal, and affordable method of resolving wage claims. [Fn. omitted.] In brief, in a Berman proceeding the commissioner may hold a hearing on the wage claim; the pleadings are limited to a complaint and an answer; the answer may set forth the evidence that the defendant intends to rely on, and there is no discovery process; if the defendant fails to appear or answer no default is taken and the commissioner proceeds to decide the claim, but may grant a new hearing on request. (§ 98.) The commissioner must decide the claim within 15 days after the hearing. (§ 98.1.) Within 10 days after notice of the decision any party may appeal to the appropriate court, where the claim will be heard de novo; if no appeal is taken, the commissioner‟s decision will be deemed a judgment, final immediately and enforceable as a judgment in a civil action. (§ 98.2.) (See generally, 1 Wilcox, Cal. Employment Law (1997) §§ 5.10 to 5.19, pp. 5-16.2 to 5-52 . . . .)" (Cuadra, supra, 17 Cal.4th at pp. 858-859.)

II. The Right to Vacation Pay

Under California law, vacation pay constitutes wages. "The Labor Code defines "wages‟ as "all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.‟ (§ 200, subd. (a).) Courts have recognized that "wages‟ also include those benefits to which an employee is entitled as a part of his or her compensation, including money, room, board, clothing, vacation pay, and sick pay. (E.g., Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 780; Department of Industrial Relations v. UI Video Stores, Inc. (1997) 55 Cal.App.4th 1084, 1091.)" (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103.)

The right to a paid vacation is a contract right that, once vested, may not be forfeited upon termination. (§ 227.3.)*fn3 According to Suastez v. Plastic Dress-Up Co., supra, 31 Cal.3d at page 784, "[t]he right to a paid vacation, when offered in an employer‟s policy or contract of employment, constitutes deferred wages for services rendered. Case law from this state and others, as well as principles of equity and justice, compel the conclusion that a proportionate right to a paid vacation "vests‟ as the labor is rendered. Once vested, the right is protected from forfeiture by section ...

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