Can a California Employee Waive the Right to a Labor Commission Hearing as a Condition of Employment? The Jury is Still Out…

By David Kroll

If a California employer fails to pay wages, an employee may not want to file a lawsuit. Instead, he or she might seek administrative relief by filing a wage claim with the California Labor Commissioner.  An employee who files such a claim is entitled to a "Berman" hearing, which is conducted by a deputy labor commissioner. 

For employees, a Berman hearing is an attractive alternative to litigation.  The hearing is informal, so the rules of evidence don't apply.  That can help employees who represent themselves at the hearings— and the presiding deputy labor commissioners as well.  Indeed, those commissioners are required to interpret and apply state and related federal law, but don't need college degrees, let alone a law degree or any legal training.  And employers who think the deck is stacked against them may be right:  a 2012 analysis determined that commissioners routinely find in the employee’s favor at Berman hearings. 

There are other advantages to the Berman hearing procedure.  If the employee prevails, the employer must post a bond in the amount of the award.  Any "appeal" will be heard in the Superior Court, but the employee (and the employer) can introduce entirely new evidence.  The Labor Commission also represents indigent employees in court for free.  If the employer loses the appeal, the employer must pay the employee's attorney fees, but the employee is only liable for the employer's attorneys' fees if the court awards the employee zero. 

Because Berman hearings favor employees, employers may justifiably want prospective employees to waive Berman hearing rights in employment arbitration agreements.  It's not altogether clear if those waivers are enforceable, however. 

In 2011, the California Supreme Court held that the right to a Berman hearing can never be waived, but reversed itself two years later, after the United States Supreme Court rejected a similar California rule barring enforcement of class-action waivers in employment arbitration agreements. In reversing itself, the California Supreme Court expressed discomfort with Berman hearing waivers, noting that they'll be unenforceable if the arbitration agreement is "unconscionable" as a whole. This would occur if "the arbitral scheme imposes costs and risks on a wage claimant that make the resolution of the wage dispute inaccessible and unaffordable."  In other words, the waiver itself must be taken into account in deciding whether the agreement is unconscionable. 

Courts have already begun wrestling with this decision.  Earlier this year, the Fourth District Court of Appeal was able to duck the issue entirely, because the employment agreement excluded arbitration of "any matter within the jurisdiction of the California Labor Commissioner." In July, in an unpublished opinion issued after a Berman hearing occurred and the employee had received a substantial award, the First District Court of Appeal granted an employer's petition to compel arbitration, thus necessarily determining that a Berman hearing could be waived – without analyzing unconscionability at all.

Given the uncertainty in the law, employers should carefully review their arbitration agreements and employment handbooks with counsel, before considering whether or not they wish to provide for Berman hearing waivers.