Supreme Court of California Justia
Docket No. S244630

OTO, L.L.C. v. Kho

IN THE SUPREME COURT OF
CALIFORNIA
OTO, L.L.C.,
Plaintiff and Appellant,
v.
KEN KHO,
Defendant and Respondent;
JULIE A. SU, as Labor Commissioner, etc.,
Intervener and Appellant.
S244630
First Appellate District, Division One
A147564
Alameda County Superior Court
RG15781961
August 29, 2019
Justice Corrigan authored the opinion of the Court, in which
Chief Justice Cantil-Sakauye and Justices Liu, Cuéllar,
Kruger, and Groban concurred.
Justice Chin filed a dissenting opinion.


OTO, L.L.C. v. KHO
S244630
Opinion of the Court by Corrigan, J.
Here, we again consider the enforceability of an agreement
requiring arbitration of wage disputes. Sonic-Calabasas A, Inc.
v. Moreno
(2011) 51 Cal.4th 659 (Sonic I) concluded that such
arbitration agreements are categorically unconscionable
because workers waive their statutory rights to a “Berman
hearing” and related procedures designed to assist in the
recovery of unpaid wages. (See Lab. Code, § 98 et seq.)1 Rather
than invalidating the entire agreement, however, Sonic I held
that while Berman protections could not be waived, any party
dissatisfied with the Berman hearing’s result could move the
dispute to arbitration. (Sonic I, at pp. 669, 675.) The United
States Supreme Court vacated that judgment and remanded for
consideration in light of AT&T Mobility LLC v. Concepcion
(2011) 563 U.S. 333 (Concepcion). Thereafter, we determined
Sonic I’s categorical rule of unconscionability was preempted by
the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). (Sonic-
Calabasas A, Inc. v. Moreno
(2013) 57 Cal.4th 1109, 1146 (Sonic
II
).) We held instead that an arbitration agreement is not
categorically unconscionable solely because it entails a waiver
of the Berman procedure. An agreement to arbitrate wage
disputes can be enforceable so long as it provides an accessible
1
All statutory references are to the Labor Code unless
otherwise stated.
1
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
and affordable process for resolving those disputes. (Id. at
p. 1146.
We originally granted review in this case to decide
whether an arbitral scheme resembling civil litigation can
constitute a sufficiently accessible and affordable process.
Because the facts here involve an unusually high degree of
procedural unconscionability, however, a definitive resolution of
that specific question is unnecessary. Even if a litigation-like
arbitration procedure may be an acceptable substitute for the
Berman process in other circumstances, an employee may not
be coerced or misled into accepting this trade. Considering the
oppressive circumstances present here, we conclude the
agreement was unconscionable, rendering it unenforceable.
I. BACKGROUND
The relevant facts are not in dispute. Ken Kho was hired
as a service technician for One Toyota of Oakland (One Toyota
in January 2010.2 Three years later, a human resources “porter”
approached Kho in his workstation and asked him to sign
several documents. Kho was required to sign them immediately
and return them to the porter, who waited in the workstation.
It took Kho three or four minutes to sign them all. He had no
opportunity to read them, nor were their contents explained.
Kho’s first language is Chinese. He was not given copies of the
documents in either language.
One document was titled “Comprehensive Agreement—
Employment At-Will and Arbitration.”3 As the Court of Appeal
2
The auto dealership is licensed as OTO, L.L.C., apparently
an acronym of One Toyota of Oakland.
3
According to the parties, this agreement is essentially the
same as the one involved in the Sonic cases. Although
2
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
observed, “Notwithstanding its designation as a ‘comprehensive’
employment contract, the one and one-quarter page contract is
merely an arbitration clause grafted onto an acknowledgment of
at-will employment.”
The contract’s arbitration clause is contained in a dense,
single-spaced paragraph, written in a very small typeface that
fills almost an entire page.4 Subject to limited exceptions,
nearly any employment-related claim made by either party
must be submitted to binding arbitration. Class or collective
proceedings are generally prohibited. Arbitrations must be
conducted before a retired superior court judge, pursuant to the
California Arbitration Act (Code Civ. Proc., § 1280 et seq.), with
full discovery permitted (see Code Civ. Proc., § 1283.05).
Furthermore, “[t]o the extent applicable in civil actions in
California courts,” the agreement requires adherence to “all
rules of pleading (including the right of demurrer), all rules of
impossible to verify without the Sonic record, the assertion may
be at least partially true. Both employers are automotive
dealerships and the contract appears to be a standardized form.
However, the agreements cannot be “identical,” as One Toyota
claims. The Sonic II contract allowed either party to seek review
of an award under California appellate rules of procedure. (See
Sonic II, supra, 57 Cal.4th at pp. 1146-1147.) The agreement
here includes no such term. Sonic II did not resolve whether the
agreement was substantively unconscionable. Instead, noting
that details of the arbitration process might not be reflected on
the face of the agreement, the case was remanded for additional
fact-finding. (See id. at pp. 1147-1148.) Here, once again, we
are faced with a bare agreement. No additional facts about One
Toyota’s arbitration process were developed below.
4
The parties dispute the precise font size. Kho asserts it is
7 points, while One Toyota insists it is 8.5 points. By any
measure, the type is quite small.
3
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
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.”5 The
allocation of arbitration costs is not addressed explicitly.
Instead, the agreement refers to Code of Civil Procedure
section 1284.2, which generally provides that parties to an
arbitration must bear their own expenses. But the agreement
also states that “controlling case law” or statutes will prevail
over Code of Civil Procedure section 1284.2 if there is a conflict.
Kho’s employment ended in April 2014. Several months
later, he filed a complaint with the Labor Commissioner for
unpaid wages. At a settlement conference before a deputy labor
commissioner, One Toyota was represented by counsel; Kho
appeared in propria persona. One Toyota contends its attorney
demanded arbitration at the conference, presenting Kho with a
copy of the signed arbitration agreement, but Kho and the Labor
Commissioner dispute this account. Kho rejected One Toyota’s
settlement offer and requested a Berman hearing. The hearing
was set in August 2015, some nine months later.
On the Friday before the Monday Berman hearing, One
Toyota filed a petition to compel arbitration and stay the
administrative proceedings. It did not serve these papers on
Kho. On the morning of the hearing, One Toyota’s attorney
notified the Labor Commissioner by fax of its petition and asked
that the hearing be taken off calendar. The hearing officer
refused. One Toyota’s attorney appeared at the scheduled time
5
A motion for judgment under Code of Civil Procedure
section 631.8 is the equivalent of a nonsuit motion in a court
trial. (See Ford v. Miller Meat Co. (1994) 28 Cal.App.4th 1196,
1200.
4
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
but left after serving Kho for the first time with the petition to
compel. Proceeding without One Toyota, the hearing officer
awarded Kho $102,912 in unpaid wages and $55,634 in
liquidated damages, interest, and penalties. One Toyota sought
to vacate the award. The Labor Commissioner intervened on
Kho’s behalf and opposed the motions to compel and vacate. One
Toyota posted the required bond to permit de novo review of the
award under Labor Code section 98.2. (See post, at p. 8.
The trial court vacated the Labor Commissioner’s award,
concluding the hearing should not have proceeded in One
Toyota’s absence. The court did not compel arbitration,
however. It found a high degree of procedural unconscionability
attended the agreement’s execution, which “created oppression
or surprise due to unequal bargaining power.” The court also
found the agreement substantively unconscionable under Sonic
II
because it “fails to provide a speedy, informal and affordable
method of resolving wage claims and has virtually none of the
benefits afforded by the Berman hearing procedure.” The court
observed, “Contrary to the assumption that arbitration is
intended to provide an inexpensive, efficient procedure to
vindicate rights, the agreement in this case seeks, in large part,
to restore the procedural rules and procedures that create
expense and delay in civil litigation.” In light of this ruling, the
court declined to address the Labor Commissioner’s argument
that One Toyota waived its right to arbitrate by waiting too long
to claim it.
The Court of Appeal reversed. Although it noted an
“extraordinarily high” degree of procedural unconscionability in
the agreement’s execution, it concluded the agreement was not
substantively unconscionable. The agreement had no
objectionable terms and could be considered “ ‘harsh or one-
5
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
sided’ only in comparison to the various features of the Labor
Code that seek to level the playing field for wage claimants.”
The arbitration would be sufficiently affordable under Sonic II
because laws external to the agreement require that employers
pay both the costs of arbitration (see Armendariz v. Foundation
Health Psychcare Service, Inc.
(2000) 24 Cal.4th 83
(Armendariz)) and a successful claimant’s reasonable attorney
fees (see Lab. Code, § 218.5). Though the selected arbitration
procedure is more complex than a Berman hearing, the court
observed that those hearings are nonbinding and can progress,
at either side’s request, to a de novo proceeding in superior
court. In specifying an arbitral process that resembles civil
litigation, the agreement thus “anticipates a proceeding that is
no more complex than will often be required to resolve a wage
claim under the Berman procedures.” This resolution made it
unnecessary for the court to address the Labor Commissioner’s
cross-appeal from the order vacating her award. Finally, the
court held that One Toyota did not forfeit its right to arbitrate
because there was no showing of prejudice from the company’s
delay in seeking arbitration.
II. DISCUSSION
A.
The Berman Process
Before addressing Kho’s unconscionability defense, we
review the statutory procedures he waived by agreeing to
arbitration. We also consider the significance of that waiver in
light of Sonic I and Sonic II.
1.
Statutory Procedures Available to Wage Claimants
The Labor Code provides an administrative procedure for
recovery of unpaid wages. When an employer does not pay
wages as required, the employee may either: (1) file a civil
6
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
action in court, or (2) file a wage claim with the Labor
Commissioner under sections 98 to 98.8. The administrative
option was added in 1976 (see Stats. 1976, ch. 1190, §§ 4-11,
pp. 5368-5371) and is commonly known as a “Berman” hearing.6
If an employee files an administrative complaint, the
Labor Commissioner may either accept the matter and conduct
a Berman hearing (§ 98, subd. (a)); prosecute a civil action on
the employee’s behalf (§ 98.3); or take “no further action . . . on
the complaint” (§ 98, subd. (a)). The commissioner’s staff may
try to settle the complaint before holding a hearing or filing suit.
(Dept. of Industrial Relations, Div. of Labor Stds. Enforcement
(DLSE), Policies and Procedures for Wage Claim Processing
(2012 rev.) p. 2.) Subject to extensions of time, Berman hearings
must generally be held within 90 days after a matter is accepted.
(§ 98, subd. (a).
A Berman hearing is conducted by a deputy commissioner,
who may issue subpoenas. (Cal. Code Regs., tit. 8, §§ 13502,
13506.) The procedure “is designed to provide a speedy,
informal, and affordable method of resolving wage claims.”
(Cuadra v. Millan (1998) 17 Cal.4th 855, 858 (Cuadra).
Pleadings are limited to a complaint and answer. There is no
discovery process. (§ 98, subd. (d).) Technical rules of evidence
do not apply, and all relevant evidence is admitted “if it is the
sort of evidence on which responsible persons are accustomed to
rely in the conduct of serious affairs.” (Cal. Code Regs., tit. 8,
§ 13502.) The hearing officer may assist the parties with cross-
examination and explain issues and terms involved. (DLSE,
6
The legislation was sponsored by Assemblyman Howard
Berman. (Post v. Palo/Haklar & Associates (2000) 23 Cal.4th
942, 946.
7
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
Policies and Procedures for Wage Claim Processing, supra, at
p. 3.) If necessary, a translator will be provided. (Ibid.; see
§ 105, subd. (b).) The claim must be decided within 15 days of
the hearing. (§ 98.1, subd. (a).
Either party may appeal the decision to the superior court,
which reviews the claim de novo. (§ 98.2, subd. (a).) An
employer who appeals must post an undertaking in the amount
of the award. (Id., subd. (b).) On appeal, the Labor
Commissioner may represent claimants “financially unable to
afford counsel” and must represent any indigent claimant
attempting to uphold the award while objecting to no part of it.
(§ 98.4.) An unappealed decision is a final judgment,
enforceable immediately. (§ 98.2, subds. (d), (e).) The
commissioner is responsible for enforcement (id., subd. (i)),
which is entitled to court priority (id., subd. (e)).
If an employer’s appeal fails, the court determines costs
and reasonable attorney fees incurred by the successful
employee and orders payment by the losing appellant. (§ 98.2,
subd. (c).) Claimants represented by the commissioner may still
recover fees, consistent with the statute’s goal of discouraging
unmeritorious appeals. (Lolley v. Campbell (2002) 28 Cal.4th
367, 376-378 (Lolley).) “An employee is successful if the court
awards an amount greater than zero.” (§ 98.2, subd. (c).) The
statute provides a one-way fee-shifting scheme: An
unsuccessful employer must pay attorney fees but a successful
one may not recover them. (See Arias v. Kardoulias (2012) 207
Cal.App.4th 1429, 1435.) This fee scheme differs from wage
8
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Opinion of the Court by Corrigan, J.
claims brought in superior court, where the “prevailing party”
may obtain attorney fees. (§ 218.5, subd. (a).)7
The Berman process is optional for both claimants and the
Labor Commissioner. Aggrieved employees may take their
wage claims directly to superior court. (See § 218.) Likewise,
the commissioner may decline to act on a filed complaint. (See
§ 98, subd. (a).) However, Berman procedures can significantly
reduce the costs and risks of pursuing a wage claim. They
provide “an accessible, informal, and affordable” avenue for
employees to seek resolution, with assistance available if
necessary. (Sonic II, supra, 57 Cal.4th at p. 1129.) They
discourage unmeritorious appeals through a bond requirement
and a fee-shifting scheme that favors employees. (See id. at
p. 1130.) They permit the commissioner to represent claimants
on appeal and facilitate award collection. (See ibid.
2.
The Sonic I and Sonic II Decisions
Sonic I and Sonic II addressed the validity of predispute
agreements requiring wage claim arbitration. Sonic I held that
it is against public policy for an employer to require employees
to waive their Berman rights as a condition of employment, and
that an arbitration agreement effectively waiving Berman
rights is substantively unconscionable as a matter of law. (Sonic
7
As amended in 2013, section 218.5, subdivision (a
provides that “if the prevailing party in the court action is not
an employee, attorney’s fees and costs shall be awarded
pursuant to this section only if the court finds that the employee
brought the court action in bad faith.” (Stats. 2013, ch. 142, § 1
Although it does not guarantee that wage claimants will be able
to recover their attorney fees, this amendment largely
eliminates the risk that they will be liable for their employer’s
fees.
9
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
I, supra, 51 Cal.4th at pp. 684-687.) However, in construing the
agreement to attempt to harmonize the competing policies at
issue, Sonic I also held that parties could proceed to binding
arbitration after they had completed a Berman hearing. (Id. at
p. 675.) In other words, instead of pursuing a de novo appeal in
superior court, a party dissatisfied with the Labor
Commissioner’s ruling could petition to compel arbitration. (Id.
at p. 676.
Sonic I’s holdings were short-lived. Two months later, on
a related question, Concepcion, supra, 563 U.S. 333 abrogated
our holding from Discover Bank v. Superior Court (2005) 36
Cal.4th 148 that class arbitration waivers in consumer contracts
are unconscionable. (Concepcion, at pp. 341-344.) The high
court explained that the “overarching purpose of the FAA . . . is
to ensure the enforcement of arbitration agreements according
to their terms so as to facilitate streamlined proceedings.” (Id.
at p. 344.) Because Discover Bank’s classwide arbitration rule
interfered with the “fundamental attributes of arbitration,” such
as efficiency and informality, it was preempted as inconsistent
with the FAA. (Concepcion, at p. 344.) Thereafter, the court
vacated the Sonic I judgment and remanded for our
consideration in light of Concepcion. (Sonic-Calabasas A, Inc. v.
Moreno
(2011) 565 U.S. 973.
On remand, we acknowledged the Supreme Court’s
admonition that states “cannot require a procedure that is
inconsistent with the FAA, even if it is desirable for unrelated
reasons.” (Concepcion, supra, 563 U.S. at p. 351; see Sonic II,
supra, 57 Cal.4th at p. 1141.) Because the court identified
efficiency as a hallmark of arbitration under the FAA,
Concepcion taught that “courts cannot impose unconscionability
rules that interfere with arbitral efficiency, including rules
10
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
forbidding waiver of administrative procedures that delay
arbitration.” (Sonic II, at p. 1141; see Concepcion, at pp. 344-
345.) Accordingly, Sonic I’s categorical rule prohibiting a waiver
of Berman procedures was preempted. (Sonic II, at pp. 1139-
1141.
Nevertheless, we noted that unconscionability remains a
valid defense to enforcement, even after Concepcion. The
overarching unconscionability question is whether an
agreement is imposed in such an unfair fashion and so unfairly
one-sided that it should not be enforced. Arbitration
agreements could not be deemed categorically unconscionable
simply because they entail a waiver of the Berman proceedings.
(Sonic II, supra, 57 Cal.4th at p. 1146.) However, we provided
that an employee’s Berman waiver, while not dispositive,
remains a significant factor in considering unconscionability.
An agreement’s failure to “provide an employee with an
accessible and affordable arbitral forum for resolving wage
disputes may support a finding of unconscionability. As with
any contract, the unconscionability inquiry requires a court to
examine the totality of the agreement’s substantive terms as
well as the circumstances of its formation to determine whether
the overall bargain was unreasonably one-sided.” (Ibid.
The Sonic II majority opinion focused repeatedly on the
need for accessible and affordable arbitration, reasoning that
these were key benefits of the Berman process that parties to an
arbitration agreement had decided to forgo. We stopped short
of defining the requirements for an acceptable arbitration
framework, however, and emphasized that arbitration can be
structured in various ways “so that it facilitates accessible,
affordable resolution of wage disputes,” without necessarily
replicating Berman protections. (Sonic II, supra, 57 Cal.4th at
11
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Opinion of the Court by Corrigan, J.
p. 1147.) So long as the arbitral procedure is relatively “low-
cost” (ibid.) and provides a forum for wage claimants “to pursue
their claims effectively” (ibid.), its adoption in lieu of the
Berman process will not, in itself, be considered unconscionable
(id. at pp. 1147-1148). In short, when an adhesion contract
requires arbitration, “the unconscionability inquiry focuses on
whether the arbitral scheme imposes costs and risks on a wage
claimant that make the resolution of the wage dispute
inaccessible and unaffordable,” thus effectively blocking every
forum for redress including arbitration itself. (Id. at p. 1148.
We did not decide whether the Sonic II agreement was
substantively unconscionable under this standard. Recognizing
that unconscionability is a fact-specific defense, we remanded
for the trial court to examine additional evidence regarding the
particulars of the arbitration process set out in the agreement.
(Sonic II, supra, 57 Cal.4th at pp. 1147-1148.
B.
Unconscionability of the Arbitration Agreement
California law strongly favors arbitration. Through the
comprehensive provisions of the California Arbitration Act
(Code Civ. Proc., § 1280 et seq.), “the Legislature has expressed
a ‘strong public policy in favor of arbitration as a speedy and
relatively inexpensive means of dispute resolution.’ ”
(Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (Moncharsh).
As with the FAA (9 U.S.C. § 1 et seq.), California law establishes
“a presumption in favor of arbitrability.” (Engalla v.
Permanente Medical Group, Inc.
(1997) 15 Cal.4th 951, 971.) An
agreement to submit disputes to arbitration “is valid,
enforceable and irrevocable, save upon such grounds as exist for
the revocation of any contract.” (Code Civ. Proc., § 1281; see 9
U.S.C. § 2.
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Opinion of the Court by Corrigan, J.
“ ‘[G]enerally applicable contract defenses, such as . . .
unconscionability, may be applied to invalidate arbitration
agreements without contravening’ the FAA” or California law.
(Pinnacle Museum Tower Assn. v. Pinnacle Market Development
(US), LLC
(2012) 55 Cal.4th 223, 246 (Pinnacle); see Concepcion,
supra, 563 U.S. at p. 339.) Unconscionability can take different
forms depending on the circumstances and terms at issue.
However, the doctrine’s application to arbitration agreements
must rely on the same principles that govern all contracts.
(Sonic II, supra, 57 Cal.4th at p. 1133.) The degree of unfairness
required for unconscionability must be as rigorous and
demanding for arbitration clauses as for any other contract
clause. (Ibid.
The general principles of unconscionability are well
established. A contract is unconscionable if one of the parties
lacked a meaningful choice in deciding whether to agree and the
contract contains terms that are unreasonably favorable to the
other party. (Sonic II, supra, 57 Cal.4th at p. 1133.) Under this
standard, the unconscionability doctrine “ ‘has both a
procedural and a substantive element.’ ” (Ibid.) “The
procedural element addresses the circumstances of contract
negotiation and formation, focusing on oppression or surprise
due to unequal bargaining power. [Citations.] Substantive
unconscionability pertains to the fairness of an agreement’s
actual terms and to assessments of whether they are overly
harsh or one-sided.” (Pinnacle, supra, 55 Cal.4th at p. 246.
Both procedural and substantive unconscionability must
be shown for the defense to be established, but “they need not be
present in the same degree.” (Armendariz, supra, 24 Cal.4th at
p. 114.) Instead, they are evaluated on “ ‘a sliding scale.’ ”
(Ibid.) “[T]he more substantively oppressive the contract term,
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Opinion of the Court by Corrigan, J.
the less evidence of procedural unconscionability is required to”
conclude that the term is unenforceable. (Ibid.) Conversely, the
more deceptive or coercive the bargaining tactics employed, the
less substantive unfairness is required. (A & M Produce Co. v.
FMC Corp.
(1982) 135 Cal.App.3d 473, 487 (A & M Produce); see
Carlson v. Home Team Pest Defense, Inc. (2015) 239 Cal.App.4th
619, 635; Carmona v. Lincoln Millennium Car Wash, Inc. (2014
226 Cal.App.4th 74, 85 (Carmona).) A contract’s substantive
fairness “must be considered in light of any procedural
unconscionability” in its making. (Sanchez v. Valencia Holding
Co., LLC
(2015) 61 Cal.4th 899, 912 (Sanchez).) “The ultimate
issue in every case is whether the terms of the contract are
sufficiently unfair, in view of all relevant circumstances, that a
court should withhold enforcement.” (Ibid.
The burden of proving unconscionability rests upon the
party asserting it. (Sanchez, supra, 61 Cal.4th at p. 911; Sonic
II
, supra, 57 Cal.4th at p. 1148.) “Where, as here, the evidence
is not in conflict, we review the trial court’s denial of arbitration
de novo.” (Pinnacle, supra, 55 Cal.4th at p. 236.
1.
Procedural Unconscionability
The Court of Appeal observed that the arbitration
agreement’s execution involved an “extraordinarily high” degree
of procedural unconscionability. We agree.
A procedural unconscionability analysis “begins with an
inquiry into whether the contract is one of adhesion.”
(Armendariz, supra, 24 Cal.4th at p. 113.) An adhesive contract
is standardized, generally on a preprinted form, and offered by
the party with superior bargaining power “on a take-it-or-leave-
it basis.” (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237,
1245 (Baltazar); see Armendariz, at p. 113.) Arbitration
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Opinion of the Court by Corrigan, J.
contracts imposed as a condition of employment are typically
adhesive (see Armendariz, at pp. 114-115; Serpa v. California
Surety Investigations, Inc.
(2013) 215 Cal.App.4th 695, 704), and
the agreement here is no exception. The pertinent question,
then, is whether circumstances of the contract’s formation
created such oppression or surprise that closer scrutiny of its
overall fairness is required. (See Baltazar, at pp. 1245-1246;
Farrar v. Direct Commerce, Inc. (2017) 9 Cal.App.5th 1257,
1267-1268.) “ ‘ “Oppression occurs where a contract involves
lack of negotiation and meaningful choice, surprise where the
allegedly unconscionable provision is hidden within a prolix
printed form.” ’ ” (Pinnacle, supra, 55 Cal.4th at p. 247, italics
added; see De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966,
983.) This record reveals both oppression and surprise.
“The circumstances relevant to establishing oppression
include, but are not limited to (1) the amount of time the party
is given to consider the proposed contract; (2) the amount and
type of pressure exerted on the party to sign the proposed
contract; (3) the length of the proposed contract and the length
and complexity of the challenged provision; (4) the education
and experience of the party; and (5) whether the party’s review
of the proposed contract was aided by an attorney.” (Grand
Prospect Partners, L.P. v. Ross Dress for Less, Inc.
(2015) 232
Cal.App.4th 1332, 1348, fn. omitted.) With respect to
preemployment arbitration contracts, we have observed that
“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.) This economic
15
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Opinion of the Court by Corrigan, J.
pressure can also be substantial when employees are required
to accept an arbitration agreement in order to keep their job.
Employees who have worked in a job for a substantial length of
time have likely come to rely on the benefits of employment. For
many, the sudden loss of a job may create major disruptions,
including abrupt income reduction and an unplanned reentry
into the job market. In both the prehiring and posthiring
settings, courts must be “particularly attuned” to the danger of
oppression and overreaching. (Armendariz, at p. 115; see
Baltazar, supra, 62 Cal.4th at p. 1244.
The circumstances here demonstrate significant
oppression. The agreement was presented to Kho in his
workspace, along with other employment-related documents.
Neither its contents nor its significance was explained. One
Toyota admits that Kho was required to sign the agreement to
keep the job he had held for three years. Because the company
used a piece-rate compensation system, any time Kho spent
reviewing the agreement would have reduced his pay.
Moreover, as the Court of Appeal explained, “Not only did One
Toyota provide no explanation for its demand for his signature,
it selected a low-level employee, a ‘porter,’ to present the
Agreement, creating the impression that no request for an
explanation was expected and any such request would be
unavailing.” By having the porter wait for the documents, One
Toyota conveyed an expectation that Kho sign them
immediately, without examination or consultation with counsel.
One Toyota protests that Kho did not ask questions about the
agreement, but there is no indication that the porter had the
knowledge or authority to explain its terms. (See Carmona,
supra, 226 Cal.App.4th at pp. 84-85.) Similarly, although One
Toyota is correct that Kho did not attempt to negotiate, a
16
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
complaining party need not show it tried to negotiate
standardized contract terms to establish procedural
unconscionability. (Carbajal v. CWPSC, Inc. (2016) 245
Cal.App.4th 227, 244; see Sanchez, supra, 61 Cal.4th at p. 914.
By its conduct, One Toyota conveyed the impression that
negotiation efforts would be futile. Finally, Kho was not given
a copy of the agreement he had signed.8
The facts also support the trial court’s finding of surprise.
The agreement is a paragon of prolixity, only slightly more than
a page long but written in an extremely small font. The single
dense paragraph covering arbitration requires 51 lines. As the
Court of Appeal noted, the text is “visually impenetrable” and
“challenge[s] the limits of legibility.”
The substance of the agreement is similarly opaque. The
sentences are complex, filled with statutory references and legal
jargon. The second sentence alone is 12 lines long. The
arbitration paragraph refers to: the California Fair
Employment and Housing Act; title VII of the Civil Rights Act
of 1964; other unspecified “local, state or federal laws or
regulations”; the National Labor Relations Act; the California
Workers’ Compensation Act; “California Small Claims” actions;
the Department of Fair Employment and Housing; the
Employment
Development
Department;
the
“Equal
Opportunity Commission”; the federal and California
8
Nor was Kho offered a version to read in his native
language. (See Subcontracting Concepts (CT), LLC v. De Melo
(2019) 34 Cal.App.5th 201, 211; Carmona, supra, 226
Cal.App.4th at p. 85.) However, because the record does not
reveal the level of Kho’s English proficiency, we cannot
determine the significance of this omission, and we do not rely
on it.
17
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
arbitration acts; and six different sections of California’s Civil
Code and Code of Civil Procedure. A layperson trying to
navigate this block text, printed in tiny font, would not have an
easy journey.
With respect to arbitration costs, the agreement states: “If
CCP § 1284.2 conflicts with other substantive statutory
provisions or controlling case law, the allocation of costs and
arbitrator fees shall be governed by said statutory provisions or
controlling case law instead of CCP § 1284.2.” Code of Civil
Procedure section 1284.2 states a default rule that, unless the
agreement specifies otherwise, parties to an arbitration will
bear their own expenses. However, Armendariz created an
exception to this general rule for arbitrations of employment-
related disputes. (See Armendariz, supra, 24 Cal.4th at pp. 110-
111.)9 Although the agreement anticipates that the “controlling
case law” of Armendariz would prevail over the statutory default
rule, One Toyota’s obligation to pay arbitration-related costs
would not be evident to anyone without legal knowledge or
access to the relevant authorities. It is difficult to envision that
Kho would have had any idea what the cited code section says
or that a 13-year-old case creates a relevant exception to it. This
example illustrates the difficulty a layperson would have in
9
Under Armendariz, “when an employer imposes
mandatory arbitration as a condition of employment, the
arbitration agreement or arbitration process cannot generally
require the employee to bear any type of expense that the
employee would not be required to bear if he or she were free to
bring the action in court.” (Armendariz, supra, 24 Cal.4th at
pp. 110-111.) Armendariz concerned claims under the
California Fair Employment and Housing Act (Gov. Code,
§ 12900 et seq.), but One Toyota does not dispute that its holding
applies equally to wage claims.
18
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
deciphering key terms. It would have been nearly impossible to
understand the contract’s meaning without legal training and
access to the many statutes it references. Kho had neither.
Under these circumstances, Kho’s signature attesting to have
read and understood the agreement appears formulaic rather
than informed. We agree with the Court of Appeal that the
agreement appears to have been drafted with an aim to thwart,
rather than promote, understanding.
The document itself and the manner of its presentation did
not promote voluntary or informed agreement to its terms.
“Arbitration is favored in this state as a voluntary means of
resolving disputes, and this voluntariness has been its bedrock
justification.” (Armendariz, supra, 24 Cal.4th at p. 115; see
Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 252.
Arbitration contracts are vigorously enforced out of respect for
the parties’ mutual and voluntary agreement to resolve disputes
by this alternative means. (See, e.g., Moncharsh, supra, 3
Cal.4th at pp. 10-11.) However, an inference of voluntary assent
can be indulged only so far and must yield in the face of
undisputed facts that undermine it. Where an employee is
induced to sign an arbitration agreement through “sharp
practices” and surprise (see Gentry v. Superior Court (2007) 42
Cal.4th 443, 469 (Gentry)),10 the consent rationale carries less
force. “[A]rbitration ‘is a matter of consent, not coercion.’ ”
(Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp. (2010) 559 U.S.
662, 681; see Lamps Plus, Inc. v. Varela (2019) __ U.S. __, __
10
In Iskanian v. CLS Transportation Los Angeles, LLC
(2014) 59 Cal.4th 348, 360, we recognized that Gentry’s holding
regarding class arbitration waivers had been abrogated by
United States Supreme Court precedent.
19
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
[139 S.Ct. 1407, 1415].) On this record, it is virtually impossible
to conclude that Kho knew he was giving up his Berman rights
and voluntarily agreeing to arbitration instead.
2.
Substantive Unconscionability
Substantive unconscionability examines the fairness of a
contract’s terms. This analysis “ensures that contracts,
particularly contracts of adhesion, do not impose terms that
have been variously described as ‘ “ ‘overly harsh’ ” ’ (Stirlen v.
Supercuts, Inc.
(1997) 51 Cal.App.4th 1519, 1532), ‘ “unduly
oppressive” ’ (Perdue v. Crocker National Bank (1985) 38 Cal.3d
913, 925), ‘ “so one-sided as to ‘shock the conscience’ ” ’
(Pinnacle[, supra,] 55 Cal.4th [at p.] 246), or ‘unfairly one-sided’
(Little [v. Auto Stiegler, Inc. (2003)] 29 Cal.4th [1064,] 1071.) All
of these formulations point to the central idea that the
unconscionability doctrine is concerned not with ‘a simple old-
fashioned bad bargain’ [citation], but with terms that are
‘unreasonably favorable to the more powerful party.’ ” (Sonic II,
supra, 57 Cal.4th at p. 1145.) Unconscionable terms “ ‘impair
the integrity of the bargaining process or otherwise contravene
the public interest or public policy’ ” or attempt to impermissibly
alter fundamental legal duties. (Ibid.) They may include fine-
print terms, unreasonably or unexpectedly harsh terms
regarding price or other central aspects of the transaction, and
terms that undermine the nondrafting party’s reasonable
expectations. (Ibid.; see Sanchez, supra, 61 Cal.4th at p. 911.
These examples are illustrative, not exhaustive.
Substantive terms that, in the abstract, might not support
an unconscionability finding take on greater weight when
imposed by a procedure that is demonstrably oppressive.
Although procedural unconscionability alone does not invalidate
20
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
a contract, its existence requires courts to closely scrutinize the
substantive terms “to ensure they are not manifestly unfair or
one-sided.” (Gentry, supra, 42 Cal.4th at p. 469.) We hold that,
given the substantial procedural unconscionability here, even a
relatively low degree of substantive unconscionability may
suffice to render the agreement unenforceable. (Carmona,
supra, 226 Cal.App.4th at p. 85; A & M Produce, supra, 135
Cal.App.3d at p. 487; see Armendariz, supra, 24 Cal.4th at
p. 114.
Kho and the Labor Commissioner do not focus on the
fairness of specific, isolated terms in the agreement. Rather,
they contend One Toyota’s arbitral process is so inaccessible and
unaffordable, considered as a whole, that it does not offer an
effective means for resolving wage disputes. (See Sonic II,
supra, 57 Cal.4th at p. 1146.)11 This is a close question, which
cannot be resolved in the abstract. It is important to stress that
the waiver of Berman procedures does not, in itself, render an
arbitration agreement unconscionable. However, a substantive
unconscionability analysis is sensitive to “the context of the
rights and remedies that otherwise would have been available
to the parties.” (Sanchez, supra, 61 Cal.4th at p. 922.) We must
examine both the features of dispute resolution adopted as well
as the features eliminated. (Sonic II, supra, 57 Cal.4th at
p. 1146.
11
Separately, Kho asserts the agreement is unconscionable
because it potentially extends to enforcement actions that may
be brought by the Labor Commissioner. We do not address this
new argument because, as Kho concedes, no such claims are at
issue here.
21
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
As to accessibility, Kho first observes that, unlike in
Berman proceedings, the agreement does not explain how to
initiate arbitration. Industrial Welfare Commission (IWC) wage
orders, required by law to be posted at the jobsite (Lab. Code,
§ 1183, subd. (d)), direct employees to contact the Labor
Commissioner about wage-related violations, providing for this
purpose both the Department of Industrial Relations website
and a list of local labor commissioner offices. (See, e.g., IWC
wage order No. 4-2001 (Cal. Code Regs., tit. 8, § 11040); IWC
wage order No. MW-2019 (Cal. Code Regs., tit. 8, § 11000).) An
employee can start the Berman process by filling out a simple
form found on the website and in local offices. The form is
rendered in many languages, and detailed instructions explain
how to complete and file it. In contrast, One Toyota’s agreement
does not mention how to bring a dispute to arbitration, nor does
it suggest where that information might be found.12
Commercial arbitration providers, for example, frequently
provide standardized forms to start the process. Employees can
also contact the provider for information on claim initiation.
The agreement here, however, identifies no commercial
providers. In fact, it does not mention that such providers exist.
It mandates that the arbitrator be a “retired California Superior
Court Judge” but gives no indication how an employee might
find such a person, let alone one willing to arbitrate a wage
12
A second document Kho signed the same day requires
management to be notified in writing about compensation-
related disputes but gives no indication such a notice would be
sufficient to initiate arbitration. (See dis. opn., post, at p. 31.
Indeed, it would not be, since the agreement imposes no
obligation on One Toyota to take any action upon receiving such
a notice.
22
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
claim. Although some employees might pursue other avenues
for relief and reach arbitration after encountering a motion to
compel, these additional steps will inevitably increase the delay
and expense involved. Other employees may be so confused by
the agreement that they are deterred from bringing their wage
claims at all.13
Kho also contends it would be difficult for an
unsophisticated, unrepresented wage claimant to effectively
navigate the agreement’s arbitral procedure. In the Berman
process, a claimant need only fill out a complaint form, possibly
assisted by a deputy labor commissioner, then attend a
settlement conference and, in some cases, a hearing. (See Sonic
II
, supra, 57 Cal.4th at p. 1128.) By contrast, in the arbitration
provided for here, the complaint must be framed in a legal
pleading, and the claimant must respond to discovery demands
and dispositive motions. Whereas a Berman hearing is
conducted by a deputy labor commissioner, who can explain
terminology and assist with witness examination (see ibid.), the
arbitration here must be conducted by a retired superior court
judge, with procedures similar to a formal civil trial. Evidence
must conform to technical rules of evidence, whereas all
13
The dissent argues Kho could have deduced how to initiate
arbitration by the agreement’s reference to the California
Arbitration Act. (Dis. opn., post, at p. 31.) While still
speculative, this assertion would have more force if Kho had
been given a copy of the documents he signed. It is undisputed
he was not. It seems quite a stretch to assert that a mere
reference to the California Arbitration Act in the “visually
impenetrable” (ante, at p. 17) paragraph Kho was given an
inadequate opportunity to review, and which he would have had
to recall without his own copy to assist him, informed Kho how
to initiate arbitration.
23
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
relevant evidence is typically admitted in Berman hearings.
(See ibid.; Cal. Code Regs., tit. 8, § 13502.)14 Collection is also
14
At oral argument, One Toyota’s counsel asserted that
these procedural requirements would not apply in wage claim
arbitrations because arbitrators would know to use simplified,
Berman-like procedures instead. This argument was never
previously made and is contrary to One Toyota’s position
throughout this appeal. In the Court of Appeal, One Toyota
defended the complexity of its arbitral process by arguing that
the agreement’s “rules for discovery and motion practice are
expressly the same as they would be in court—the same rules
that the state legislature deemed fair enough to institute for all
civil proceedings—with the only modifications noted in the four
corners of the arbitration agreement and not requiring reference
to any other documents.” In its briefing here, One Toyota
argued that what “Kho and the Labor Commissioner . . . both
truly desire is an arbitration procedure that resembles the
Berman hearing process. However, an employee is not entitled
to that . . . .” One Toyota never suggested its arbitral process
did, in fact, resemble the Berman procedures. Moreover,
counsel’s representation at oral argument is directly
contradicted by the language of the arbitration agreement. It
states: “To the extent applicable in civil 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 shall be vested with
authority to determine any and all issues pertaining to the
dispute/claims raised, any such determinations shall be based
solely upon the law governing the claims and defenses pleaded,
and the arbitrator may not invoke any basis (including but not
limited to notions of ‘just cause’) for his/her determinations
other than such controlling law.” (Italics added.) This language
begins in the 32d line of the arbitration paragraph. It clearly
requires the parties to follow the same pleading, evidence, and
motion practice rules that govern civil litigation. Further, by
requiring arbitration before a retired superior court judge, the
agreement ensures the arbitrators will be experienced in
24
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
simplified in the Berman context because the Labor
Commissioner is responsible for enforcing the judgment.
(§ 98.2, subd. (i).) Or, if the employer unsuccessfully appeals the
Labor Commissioner’s award, the claimant can collect on a
posted bond. (§ 98.2, subd. (b).) In arbitration, a successful
claimant must petition to confirm the award and reduce it to an
enforceable judgment. (Code Civ. Proc., §§ 1285, 1287.4.
The Berman process was specifically designed to give
claimants a “speedy, informal, and affordable method” for
resolving wage disputes. (Cuadra, supra, 17 Cal.4th at
p. 858.)15 The process advances “the very objectives of
‘informality,’ ‘lower costs,’ ‘greater efficiency and speed,’ and use
of ‘expert adjudicators’ that the high court has deemed
‘fundamental attributes of arbitration.’ ” (Sonic II, supra, 57
Cal.4th at p. 1149; see Concepcion, supra, 563 U.S. at pp. 344,
348.)16 By contrast, the arbitration provided for here
enforcing these procedural rules. It is difficult, if not impossible,
to square the strict language of the contract with One Toyota’s
belated assertion.
15
Although the resolution of this particular dispute has not
been speedy, the delay is largely attributable to One Toyota.
Kho filed a claim with the Labor Commissioner in October 2014.
A settlement conference was held the next month, and a Berman
hearing followed nine months later, in August 2015. The Labor
Commissioner issued an award only a week after the hearing,
around 10 months after Kho filed his claim. Litigation over One
Toyota’s motion to compel arbitration then consumed the next
four years.
16
The dissent raises the same criticisms of the Berman
procedure that this court considered at length, and rejected, in
Sonic II, supra, 57 Cal.4th at pages 1160-1162. The Berman
procedures remain the Legislature’s best “solution to the real-
world problems employees face in recovering wages owed.” (Id.
at p. 1162.) These “informal procedures and incentives . . . make
25
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
incorporates the intricacies of civil litigation. An employee must
surrender the benefits and efficiencies of the Berman process
but does not gain in return any of the efficiencies or cost savings
often associated with arbitration.
We observed in Little v. Auto Stiegler, Inc., supra, 29
Cal.4th at page 1075, footnote 1, that litigation-like procedures,
on their own, are not necessarily so one-sided as to make an
arbitration agreement unconscionable. We certainly do not now
suggest that a system of statutory and common law carefully
crafted to ensure fairness to both sides, and subject to
continuous review, is per se unfair.17 However, that carefully
crafted process can be costly, complex, and time-consuming. It
is the opportunity to expedite and simplify the process that can
motivate informed parties to agree to arbitration. Furthermore,
Little’s observation was made in the context of a suit alleging
wrongful demotion and discharge. (Id. at p. 1069.) For such
it more likely employees will be able to recover wages without
incurring substantial attorney fees or the risk of liability for an
employer’s attorney fees,” and help to “ensure that employees
will be able to actually collect a favorable judgment.” (Ibid.
Now, as in 2013, “[t]he dissent does not persuade us to second-
guess the efficacy of this legislative solution or to depart from
this court’s consistent understanding of the Berman statutes’
benefits.” (Ibid.
17
It should be evident that our observations here, which the
dissent quotes repeatedly (dis. opn., post, at pp. 1, 19, 42, 45, 48,
55), pertain to civil litigation in general, not to the importation
of civil litigation’s formalities into an arbitration scheme that
was forced on an employee through oppression and surprise as
a substitute for an administrative procedure that we have
repeatedly found to be expedient and affordable. (See, e.g.,
Sonic II, supra, 57 Cal.4th at pp. 1160-1161; Cuadra, supra, 17
Cal.4th at p. 858.
26
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
claims, it may well be that an arbitration process closely
resembling civil litigation can be as advantageous for the
employee as for the employer. (See id. at p. 1075, fn. 1.) There
is no Berman-like administrative process for wrongful discharge
claims.
Our cases have taken a different approach in evaluating
the compelled arbitration of wage claims, as compared to the
arbitration of other types of disputes. Employees who agree to
arbitrate claims for unpaid wages forgo not just their right to
litigate in court, but also their resort to an expedient, largely
cost-free administrative procedure. We explained repeatedly in
Sonic II that, while the waiver of Berman procedures does not
in itself render an arbitration agreement unconscionable, the
agreement must provide in exchange an accessible and
affordable forum for resolving wage disputes. (Sonic II, supra,
57 Cal.4th at pp. 1146, 1147-1148, 1150.) No specific procedures
are required. (See id. at pp. 1147, 1170-1171.) But the arbitral
scheme must offer employees an effective means to pursue
claims for unpaid wages, and not impose unfair costs or risks on
them or erect other barriers to the vindication of their statutory
rights. (See id. at pp. 1142, 1147-1148, 1157-1158.) When
imposed in a procedurally unconscionable fashion, such barriers
to the vindication of rights may become unenforceable.
It is true, as One Toyota notes, that the results of a
Berman hearing are nonbinding. An appeal by either party will
bring the parties to the superior court for de novo review, where
litigation formalities may apply.18 But, as Sonic II explained,
18
The dissent contends efficiencies of the Berman process
are illusory because de novo appeals will simply bring the
matters to superior court. (Dis. opn., post, at p. 30.) However,
27
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
the prospect of an appeal does not negate the efficiency or
accessibility of the Berman process. (Sonic II, supra, 57 Cal.4th
at pp. 1160-1162, 1167.) Appeals are discouraged by the
requirement that employers post a bond (§ 98.2, subd. (b)) and
pay the costs and attorney fees on appeal of any employee who
recovers even a minimal amount (see § 98.2, subd. (c); Lolley,
supra, 28 Cal.4th at p. 376). If the employer does appeal,
Berman claimants who cannot afford counsel may be
represented by the Labor Commissioner. Representation in a
de novo appeal is guaranteed for indigent claimants who do not
object to the commissioner’s final order. (§ 98.4.) Absent the
agreement, Kho may well have been represented by the Labor
Commissioner in any de novo appeal. Moreover, all claimants
will have a better understanding of how to support their wage
claims as a result of having the commissioner’s assistance
during the Berman process.
the Labor Commissioner explained at oral argument that de
novo appeals are relatively rare. Most of the 30,000 to 40,000
claims filed with the commissioner each year are resolved at the
initial settlement conference, with only around 10,000
proceeding to a Berman hearing. Of those 10,000, fewer than
500 cases result in a de novo appeal. Moreover, although trial
courts generally have the power “ ‘ “to adopt any suitable
method of practice” ’ ” in cases before them (Murphy v. Kenneth
Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1118), the Labor
Commissioner represents that de novo appeals typically proceed
directly to trial, without lengthy pretrial proceedings. Formal
discovery in the superior court, though permissible, is
disfavored except in unusually high-value or complex wage
disputes. (Sales Dimensions v. Superior Court (1979) 90
Cal.App.3d 757, 763.) One Toyota has not challenged these
representations. (See Madera Police Officers Assn. v. City of
Madera (1984) 36 Cal.3d 403, 407, fn. 5.
28
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
Because the complexity of One Toyota’s arbitral process
effectively requires that employees hire counsel, there is also
force to Kho’s argument that the procedure is not an affordable
option. An arbitration procedure may not impose such costs or
risks on wage claimants that it “ ‘effectively blocks every forum
for the redress of disputes, including arbitration itself.’ ” (Sonic
II
, supra, 57 Cal.4th at p. 1148.
As noted, Armendariz, supra, 24 Cal.4th 83, requires that
employers bear most arbitration costs, which, because they
include the arbitrator’s compensation, can be substantial. The
Armendariz rule mitigates the unfairness of expecting that
employees bear costs of a procedure to which they were required
to agree. Attorney fees are different, however, because they are
not unique to arbitration. It is true that employees are free to
hire counsel, or not, whether they pursue their claims in court
or in arbitration. But wage claimants present a somewhat
special case. These employees can secure free legal assistance
from the Labor Commissioner, both at the Berman hearing and
in any subsequent appeal. While all employees would likely
benefit from having a lawyer in the litigation-like arbitration
process here, only wage claimants have to pay for representation
that was otherwise available to them for free.19
19
One Toyota suggests that the Labor Commissioner could
represent claimants in arbitration. An administrative agency’s
authority is limited to that conferred by statute or the
Constitution. (Ferdig v. State Personnel Bd. (1969) 71 Cal.2d 96,
103; Noble v. Draper (2008) 160 Cal.App.4th 1, 12.) Although
section 98.4 allows the Labor Commissioner to represent
indigent claimants in de novo court proceedings following a
Berman hearing, no statute authorizes the representation of
claimants outside this specific context. The commissioner does
have the power to prosecute its own action for the collection of
29
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Opinion of the Court by Corrigan, J.
One Toyota notes that employees who hire counsel for
wage-claim arbitrations may be able to recover their legal fees
under an applicable fee-shifting statute. (See Kirby v. Immoos
Fire Protection, Inc.
(2012) 53 Cal.4th 1244, 1251.) For example,
section 218.5, subdivision (a) requires the court to award
reasonable attorney fees and costs to the prevailing party in
“any action brought for the nonpayment of wages” if fees are
requested “upon the initiation of the action.” The parties do not
dispute that section 218.5 applies to most of Kho’s claims. While
section 218.5 permits an award of fees to either employees or
employers who prevail (see Kirby, at p. 1251), employers may
recover fees “only if the court finds that the employee brought
the court action in bad faith.” (§ 218.5, subd. (a); see Arave v.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
(2018) 19
Cal.App.5th 525, 545.
Although section 218.5 may mitigate some financial
burden, employees still face a risk that they will not be
designated the prevailing party, rendering their fees
unrecoverable. The prevailing party is the one that succeeds “on
a ‘ “practical level” ’ ” and has “ ‘realized its litigation
objectives.’ ” (Sharif v. Mehusa, Inc. (2015) 241 Cal.App.4th
185, 192.) An employer might be deemed the prevailing party
on a wage claim if the jury denies most or all of the wages
sought, even if the employee prevails on other claims. (See ibid.
unpaid wages and penalties on behalf of workers who are unable
to afford counsel. (§ 98.3; see § 98, subd. (a).) Whether this
discretionary authority extends to representing wage claimants
in an arbitration is not readily apparent but, in any event, is a
question beyond the scope of this appeal.
30
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Opinion of the Court by Corrigan, J.
In contrast, the Berman statutes provide fee-shifting to
wage claimants who secure any monetary recovery in an
employer’s appeal. (§ 98.2, subd. (c).) Considering the
simplified administrative procedures that can be navigated in
propria persona, and the availability of the Labor
Commissioner’s representation and favorable fee-shifting in a
de novo appeal, claimants can successfully complete the Berman
process without paying a cent to an attorney. The calculus is
significantly different for employees in the arbitration process
here, despite section 218.5. Assuming they can find counsel
willing to represent them in One Toyota’s complex arbitral
process, these employees will have to pay the attorney if they do
not prevail and may have to pay their employer’s attorney fees
upon a finding of bad faith. (See § 218.5, subd. (a).) Moreover,
since section 218.5, subdivision (a) requires a fee request “upon
the initiation of the action,” employees who hire counsel after
filing suit or starting arbitration may unwittingly forfeit their
right to fees by failing to make a timely request.
Because the arbitration process here is no more
complicated than ordinary civil litigation, it might be
sufficiently accessible for wage claimants who are sophisticated,
or affordable for those able to hire counsel. But an
unconscionability analysis must be sensitive to context. Context
includes both the commercial setting and purpose of the
arbitration contract and any procedural unconscionability in its
formation. (Sanchez, supra, 61 Cal.4th at pp. 911-912.) As
noted, the procedural unconscionability showing here is
exceptionally strong. Although the same contract terms might
pass muster under less coercive circumstances, a worker who is
required to trade the Berman process for arbitration should at
least have a reasonable opportunity to understand the bargain
31
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Opinion of the Court by Corrigan, J.
he is making. Had One Toyota set out the terms of its
agreement in a legible format and fairly understandable
language, or had it given Kho a reasonable opportunity to seek
clarification or advice, this would be a different case.
Ultimately, the question is whether Kho, through
oppression and surprise, was coerced or misled into making an
unfair bargain. (See Gentry, supra, 42 Cal.4th at pp. 469-470;
see also Sanchez, supra, 61 Cal.4th at p. 912.) The substantive
fairness of this particular agreement must be considered in
terms of what Kho gave up and what he received in return. By
signing the agreement, Kho surrendered the full panoply of
Berman procedures and assistance we have described. What he
got in return was access to a formal and highly structured
arbitration process that closely resembled civil litigation if he
could figure out how to avail himself of its benefits and avoid its
pitfalls. Considering the unusually coercive setting in which
this bargain was entered, we conclude it was sufficiently one-
sided as to render the agreement unenforceable.20
3.
Consistency with Federal Law
Our
holding
rests
on
generally
applicable
unconscionability principles and heeds Concepcion’s counsel
that arbitration agreements be placed “on an equal footing with
other contracts.” (Concepcion, supra, 563 U.S. at p. 339.
Nevertheless, our dissenting colleague renews several of the
preemption arguments he made in Sonic II, insisting once again
that this court’s approach to unconscionability contradicts the
FAA and United States Supreme Court jurisprudence. (See
20
In light of this conclusion, we need not decide the Labor
Commissioner’s claim, raised below, that One Toyota forfeited
its right to arbitrate.
32
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
Sonic II, supra, 57 Cal.4th at pp. 1184-1192 (conc. & dis. opn. of
Chin, J.).) We respectfully suggest these complaints are
unfounded.
The dissent’s primary objection is that our analysis
evinces hostility to arbitration, discriminates against
arbitration, or improperly prefers a nonarbitral forum. (Dis.
opn., post, at pp. 44-49.) Yet arbitration is premised on the
parties’ mutual consent, not coercion (see Stolt-Nielsen S. A. v.
AnimalFeeds Int’l Corp.
, supra, 559 U.S. at p. 681), and the
manner of the agreement’s imposition here raises serious
concerns on that score. Moreover, we have repeatedly stressed
that the substantive unconscionability of an arbitration
agreement “is viewed in the context of the rights and remedies
that otherwise would have been available to the parties.”
(Sanchez, supra, 61 Cal.4th at p. 922, citing Sonic II, supra, 57
Cal.4th at pp. 1146–1148.) The dissent supports its claim with
repeated quotations to our observations about civil litigation,
not the arbitral process under review. The argument is thus
premised on a false equivalence between the system of civil
litigation and the complex arbitral procedure adopted in this
case, which features few, if any, of the benefits typically
associated with arbitration and regarded as fundamental. (See
Concepcion, supra, 563 U.S. at pp. 344-345.) While “the Berman
statutes promote the very objectives of ‘informality,’ ‘lower
costs,’ ‘greater efficiency and speed,’ and use of ‘expert
adjudicators’ that the high court has deemed ‘fundamental
attributes of arbitration,’ ” the arbitration agreement here
undermines those objectives by causing an “increase in cost,
procedural rigor, complexity, or formality.” (Sonic II, supra, 57
Cal.4th at p. 1149, quoting Concepcion, supra, 563 U.S. at
p. 348.
33
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
In comparing Berman’s administrative process with One
Toyota’s arbitral procedure, we have simply evaluated the
bargain at issue. We have not said no arbitration could provide
an appropriate forum for resolution of Kho’s wage claim, but
only that this particular arbitral process, forced upon Kho under
especially oppressive circumstances and erecting new barriers
to the vindication of his rights, is unconscionable.
Citing the protracted appellate proceedings here, the
dissent also complains that evaluating unconscionability claims
will erect the type of “preliminary litigating hurdle” to
arbitration the high court disfavored in American Express Co. v.
Italian Colors Restaurant
(2013) 570 U.S. 228, 239. For obvious
reasons, the duration of this particular litigation can hardly be
considered typical. Few cases progress to appeal, and
vanishingly few reach this court. More importantly, the issue
here is very different from that in Italian Colors. Unlike the
“judge-made exception to the FAA” the high court found
problematic (Italian Colors, at p. 235), the unconscionability
defense has long been recognized as a permissible ground for
invalidating arbitration agreements under the FAA’s savings
clause. (9 U.S.C. § 2; see, e.g., Concepcion, supra, 563 U.S. at
p. 339; Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681,
687.) The FAA thus contemplates that unconscionability
claims, like other state law contract defenses, will be resolved
before arbitration is enforced. (See Sonic II, supra, 57 Cal.4th
at p. 1167.) If the defense cannot be addressed before
arbitration, then the savings clause has no meaning. The
dissent also predicts delay from the case-by-case litigation of
accessibility and affordability. (See dis. opn., post, at p. 52.) But
this is an argument with the unconscionability defense itself,
which is inherently fact-specific. Once again, the dissent’s view
34
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
would all but eliminate the unconscionability defense to
arbitration agreements, rendering the FAA’s savings clause
meaningless.
“Under the dissent’s sweeping view of FAA preemption, no
unconscionability rule may take into account the surrender of
statutory protections for certain claimants, whether or not those
protections interfere with fundamental attributes of
arbitration.” (Sonic II, supra, 57 Cal.4th at p. 1168.) We
rejected that view in Sonic II and continue to do so. Sonic II’s
“unconscionability rule does not treat arbitration agreements
differently from nonarbitration agreements, does not remotely
foreclose the enforceability of agreements to arbitrate wage
disputes, and does not require such agreements to adopt any
devices or procedures inimical to arbitration’s fundamental
attributes.” (Id. at p. 1171.) Our application of that rule today
fully complies with the FAA and governing law.
C.
Status of the Labor Commissioner’s Award
As noted, the trial court granted One Toyota’s motion to
vacate the Labor Commissioner’s award. Because the Court of
Appeal concluded the parties must arbitrate their wage dispute,
it did not address the Labor Commissioner’s cross-appeal from
the order vacating her award. We consider the issue because
the status of the Labor Commissioner’s award has continuing
significance on remand.
As One Toyota acknowledges, the issuance of such an
award has several consequences even if not reduced to an
enforceable judgment. When, as here, a de novo appeal is taken,
the employer must post bond in the amount of the award.
(§ 98.2, subd. (b).) Employees like Kho who do not contest any
aspect of the award can be represented by the Labor
35
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
Commissioner in the de novo proceedings (§ 98.4) and obtain
attorney fees if they recover any amount. (§ 98.2, subd. (c); see
Lolley, supra, 28 Cal.4th at p. 377.) Kho’s access to these
benefits on remand depends on the status of the Labor
Commissioner’s award.21 A properly vacated award could make
these benefits unavailable. However, it appears the order
vacating the award was made in error.
On the morning of the scheduled Berman hearing, One
Toyota faxed the Labor Commissioner a letter. The company
explained it had filed a petition to compel arbitration and
requested the hearing be taken off calendar until arbitration
was complete. The Labor Commissioner refused, proceeded
with the hearing in One Toyota’s absence, and made an award
for Kho.22 The trial court found that One Toyota was
substantially justified in refusing to participate in the Berman
hearing and that enforcing the award would violate One
Toyota’s right to a fair administrative hearing. The procedural
21
After the trial court vacated the award, One Toyota
obtained an order releasing its appeal bond. Whether
section 98.2, subdivision (b) requires reinstatement or the
posting of a new bond is a matter the trial court may consider
on remand.
22
One Toyota argues the Labor Commissioner created a
“catch-22” by asserting that One Toyota would waive its right to
arbitrate if it participated in the Berman hearing. The record
directly belies this claim. After One Toyota refused to
participate in the hearing, the hearing officer notified it in
writing: “[I]n the event that your client disagrees with the
Order, Decision, or Award in this matter you will then have the
opportunity to file an appeal or compel arbitration at that time.”
(Italics added.) One Toyota cites nothing in the record to
support its “catch-22” assertion.
36
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
posture here requires reversal of the trial court’s order granting
relief from the award.
The court purportedly relied on Code of Civil Procedure
section 1094.5, subdivision (b). That statute authorizes a writ
of mandate if an administrative tribunal “has proceeded
without, or in excess of, jurisdiction; whether there was a fair
trial; and whether there was any prejudicial abuse of
discretion.” (Code Civ. Proc., § 1094.5, subd. (b).) The difficulty
is One Toyota did not petition for a writ of mandate. (See Code
Civ. Proc., § 1094.5, subd. (a).) It simply filed a motion to vacate
the award. Moreover, administrative mandate applies only to
the results of “a proceeding in which by law a hearing is required
to be given
. . . .” (Ibid., italics added.; see Keeler v. Superior
Court
(1956) 46 Cal.2d 596, 598-599.) There is no requirement
that a Berman hearing be held on a wage complaint. The Labor
Commissioner has discretion to hold a hearing, prosecute the
case in court, or take “no further action . . . on the complaint.”
(Lab. Code, § 98, subd. (a).) Accordingly, Berman “hearings are
not subject to review under Code of Civil Procedure section
1094.5.” (Corrales v. Bradstreet (2007) 153 Cal.App.4th 33, 55.
More fundamentally, One Toyota was not entitled to relief
on its motion because it failed to exhaust its administrative
remedies. The Labor Code outlines two alternatives for
challenging a Berman award. (See Gonzalez v. Beck (2007) 158
Cal.App.4th 598, 605.) First, either party can file an appeal in
the superior court. (§ 98.2.) Second, a defendant who has failed
to answer or appear in the Berman proceedings can apply to the
Labor Commissioner for relief under Code of Civil Procedure
section 473. (Lab. Code, § 98, subd. (f).) Although an
application to the Labor Commissioner need not precede a de
novo appeal (see Jones v. Basich (1986) 176 Cal.App.3d 513,
37
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
518), this administrative recourse must be sought before a
motion to vacate the commissioner’s decision. Section 98,
subdivision (f) states: “No right to relief, including the claim
that the findings or award of the Labor Commissioner or
judgment entered thereon are void upon their face, shall accrue
to the defendant in any court unless prior application is made to
the Labor Commissioner in accordance with this chapter.” (See
Gonzalez, at pp. 605-606.) One Toyota tried to pursue both lines
of attack. It filed a de novo appeal and made a motion to vacate.
Because it failed to seek relief from the Labor Commissioner,
however, it was barred from obtaining the latter relief. (§ 98,
subd. (f).
If One Toyota wished to halt the Berman proceedings
while pursuing arbitration, it could have requested a stay. The
filing of a petition to compel arbitration does not automatically
stay ongoing proceedings; the party seeking arbitration must
request one. (Brock v. Kaiser Foundation Hospitals (1992) 10
Cal.App.4th 1790, 1796.) Under Code of Civil Procedure
section 1281.4, “[i]f an application has been made to a court of
competent jurisdiction . . . for an order to arbitrate a controversy
which is an issue involved in an action or proceeding pending
before a court of this State and such application is
undetermined, the court in which such action or proceeding is
pending shall, upon motion of a party to such action or
proceeding, stay the action or proceeding until the application
for an order to arbitrate is determined . . . .” (Italics added.
One Toyota’s petition to compel did, somewhat vaguely, ask the
court to stay “this action,” but it gave the court no opportunity
to rule on its request. The petition was filed with the court on
the Friday before a Monday Berman hearing. One Toyota did
not ask the court for an emergency stay in light of its late filing,
38
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
and no stay order was actually issued before One Toyota’s
counsel unilaterally left the hearing.
One Toyota argues the terms of Code of Civil Procedure
section 1281.4 do not apply because Berman proceedings are not
“pending before a court of this State.” This assertion
undermines One Toyota’s attempt to excuse its nonparticipation
in the hearing and ignores the rule from Brock that a motion to
compel does not effect an automatic stay. Moreover, even if the
language of section 1281.4 does not explicitly encompass
proceedings before the Labor Commissioner, the superior court
likely had the power to stay these administrative proceedings
under Code of Civil Procedure section 1281.8, subdivision (a),
which authorizes a range of provisional remedies in aid of
arbitration, including injunctive relief. Failing that, the court
could have issued a stay under its inherent power. “[A] court
ordinarily has inherent power, in its discretion, to stay
proceedings when such a stay will accommodate the ends of
justice.” (People v. Bell (1984) 159 Cal.App.3d 323, 329.) As the
court in Landis v. North American Co. (1936) 299 U.S. 248, 254
explained, “the power to stay proceedings is incidental to the
power inherent in every court to control the disposition of the
causes on its docket with economy of time and effort for itself,
for counsel, and for litigants.”
One Toyota did not obtain a stay, but simply refused to
participate in a hearing that had been set months before. Under
these circumstances, the Labor Commissioner did not act
improperly in proceeding with the hearing after One Toyota and
its counsel chose to depart. Vacating that award was error.
Nevertheless, One Toyota properly appealed the award under
section 98.2, which forestalled the Labor Commissioner’s
decision, terminated her jurisdiction, and vested jurisdiction in
39
OTO, L.L.C. v. KHO
Opinion of the Court by Corrigan, J.
the superior court. (Murphy v. Kenneth Cole Productions, Inc.,
supra, 40 Cal.4th at p. 1116.) Although the appeal terminates
the commissioner’s jurisdiction, Kho will have the benefit of the
Labor Code’s post-Berman hearing protections on remand. (See
§§ 98.2, 98.4.
III. DISPOSITION
The decision of the Court of Appeal is reversed. The
matter is remanded for return to the trial court for proceedings
on One Toyota’s de novo appeal from the Labor Commissioner’s
award.
CORRIGAN, J.
We Concur:
CANTIL-SAKAUYE, C. J.
LIU, J.
CUÉLLAR, J.
KRUGER, J.
GROBAN, J.

40

OTO, L.L.C. v. KHO
S244630
Dissenting Opinion by Justice Chin
Today, the majority holds that an arbitration agreement
is
substantively
unconscionable —
and
therefore
unenforceable — precisely because it prescribes procedures that,
according to the majority, have been “carefully crafted to ensure
fairness to both sides.” (Maj. opn., ante, at p. 25.) If you find
that conclusion hard to grasp and counterintuitive, so do I. It is
based on the majority’s view that arbitration with such
procedures, though not unaffordable or inaccessible in the
abstract or “per se unfair” (maj. opn., ante, at p. 25), is not as
advantageous for employees with unpaid wage claims as the
potentially multitiered, multistep, combined administrative and
judicial statutory process known as the Berman procedure. I
believe the majority’s analysis and conclusion to be incorrect
under state law in numerous respects. I also believe the Federal
Arbitration Act (FAA; 9 U.S.C. § 1 et seq.), as authoritatively
construed in binding United States Supreme Court decisions,
precludes the majority from invalidating this arbitration
agreement based on its subjective view that, for the purpose of
“vindicati[ng]” employees’ “statutory rights,” the prescribed
arbitration procedure is not as effective as the statutory Berman
procedure. (Maj. opn., ante, at p. 25.) I therefore dissent.
DISCUSSION
To explain why I do not join the majority, I begin by
summarizing relevant state law unconscionability principles. I
OTO, L.L.C. v. KHO
Chin, J., dissenting
then explain my disagreement with the majority’s view that “a
relatively low degree of substantive” unfairness may be
sufficient to render an arbitration agreement unenforceable on
the grounds of unconscionability (maj. opn., ante, at p. 20), and
with the majority’s analysis of procedural and substantive
unconscionability. Finally, I explain why I believe the majority’s
analysis and conclusion are inconsistent with, and therefore
preempted by, the FAA, as the United States Supreme Court
has construed that law.
A. State Law Principles of Arbitration and
Unconscionability.
Several state law legal principles must guide our analysis.
First, as the majority acknowledges, “California law strongly
favors arbitration.” (Maj. opn., ante, at p. 12.) The clearest
expression of this state policy appears in Code of Civil Procedure
section 1281, which declares that “[a] written agreement to
submit to arbitration an existing controversy or a controversy
thereafter arising is valid, enforceable and irrevocable, save
upon such grounds as exist for the revocation of any contract.”
This section establishes the “fundamental policy” of California's
arbitration scheme: “that arbitration agreements will be
enforced in accordance with their terms.” (Vandenberg v.
Superior Court
(1999) 21 Cal.4th 815, 836, fn. 10.) It creates “a
presumption in favor of arbitrability [citation] and a
requirement that an arbitration agreement must be enforced on
the basis of state law standards that apply to contracts in
general.” (Engalla v. Permanente Medical Group, Inc. (1997) 15
Cal.4th 951, 971-972.) The majority, after briefly mentioning
arbitration’s favored status under state law early in its opinion,
2
OTO, L.L.C. v. KHO
Chin, J., dissenting
essentially ignores this principle in its analysis and in its refusal
to enforce the arbitration agreement here.
Second, although the doctrine of unconscionability, as a
generally applicable contract defense, may be applied to
invalidate an arbitration agreement, as the majority notes, the
doctrine’s “application” in the arbitration context “must rely on
the same principles that govern all contracts,” and “[t]he degree
of unfairness required for unconscionability must be as rigorous
and demanding for arbitration clauses as for any other contract
clause.” (Maj. opn., ante, at p. 13.
Third, under our generally applicable principles of
unconscionability, “[a] party cannot avoid a contractual
obligation merely by complaining that the deal, in retrospect,
was unfair or a bad bargain” (Sanchez v. Valencia Holding Co.,
LLC
(2015) 61 Cal.4th 899, 911 (Sanchez)) or by showing that
the contract “gives one side a greater benefit” (Pinnacle
Museum Tower Assn. v. Pinnacle Market Development (US),
LLC
(2012) 55 Cal.4th 223, 246 (Pinnacle)). Under state law,
“[n]ot all one-sided contract provisions are unconscionable”
(Sanchez, at p. 911), and even the “fact that the bargain is a very
hard or unreasonable one is not generally sufficient per se to
induce . . . courts to interfere” (Boyce v. Fisk (1895) 110 Cal. 107,
116). Instead, the party seeking to invalidate an arbitration
agreement must show “a substantial degree of unfairness
beyonda simple old-fashioned bad bargain.’ ” (Sonic–Calabasas
A
, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1160, italics added
(Sonic II).) The contract “must be ‘so one-sided as to “shock the
conscience” ’ ” (Pinnacle, at p. 246), or, as alternatively
formulated, “ ‘overly harsh,’ ‘unduly oppressive,’ [or]
unreasonably favorable.’ ” (Sanchez, at p. 911.
3
OTO, L.L.C. v. KHO
Chin, J., dissenting
Fourth, “contracts of adhesion . . . are indispensable facts
of modern life” and “are generally enforced” even though they
“contain a degree of procedural unconscionability.” (Gentry v.
Superior Court
(2007) 42 Cal.4th 443, 469 (Gentry); see AT&T
Mobility LLC v. Concepcion
(2011) 563 U.S. 333, 346-347
(Concepcion) [“the times in which consumer contracts were
anything other than adhesive are long past”].) “[A] contract of
adhesion is fully enforceable according to its terms” unless it
violates the “reasonable expectations of the weaker or ‘adhering’
party” or is “unduly oppressive or ‘unconscionable.’ ” (Graham
v. Scissor-Tail
, Inc. (1981) 28 Cal.3d 807, 819, 820 (Graham).
Fifth, the party seeking to avoid the contract must
establish both procedural and substantive unconscionability,
“the former focusing on ‘ “oppression” ’ or ‘ “surprise” ’ due to
unequal bargaining power, the latter on ‘ “overly harsh” ’ or
‘ “one-sided” ’ results.” (Armendariz v. Foundation Health
Psychcare Services
, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).
Although both must be present, we have stated that “they need
not be present in the same degree. ‘Essentially a sliding scale is
invoked which disregards the regularity of the procedural
process of the contract formation, that creates the terms, in
proportion to the greater harshness or unreasonableness of the
substantive terms themselves.’ [Citations.] In other words, the
more substantively oppressive the contract term, the less
evidence of procedural unconscionability is required to come to
the conclusion that the term is unenforceable, and vice versa.”
(Ibid.
B. The Majority’s Sliding Scale.
At this point, I note my first concern about the majority’s
analysis: its assertion that “a relatively low degree of
4
OTO, L.L.C. v. KHO
Chin, J., dissenting
substantive unconscionability may suffice to render” an
arbitration agreement “unenforceable” if the level of procedural
unconscionability is “substantial.” (Maj. opn., ante, at p. 20.) To
begin with, it is unclear what the majority means by “relatively
low” (ibid.), and the majority sheds no light on this question.
The majority’s unadorned and unexplained assertion inevitably
poses — but does not answer — the following questions: Low
“relative[]” to what, and how “low” is enough?
Nor do our precedents support or give meaning to the
majority’s statement. The only decision from this court the
majority cites for its assertion is Armendariz. (Maj. opn., ante,
at p. 21.) However, the majority notably precedes this citation
with a “see” signal, which is the signal we use to introduce
decisions that provide only “weaker support” for a given
proposition, i.e., decisions that, as here relevant, “only indirectly
support the text” or contain “supporting dicta.” (Cal. Style
Manual (4th ed. 2000) § 1:4, p. 9.) Clearly, then, the majority
itself does not believe that Armendariz provides more than
indirect and weak support for its view.
To the extent Armendariz bears on the issue, it states, as
noted above, that the “ ‘sliding scale’ ” used in connection with
procedural and substantive unconscionability “ ‘disregards the
regularity of the procedural process of the contract formation . . .
in proportion to the greater harshness or unreasonableness of
the substantive terms themselves.’ [Citations.] In other words,
the more substantively oppressive the contract term, the less
evidence of procedural unconscionability is required to come to
the conclusion that the term is unenforceable, and vice versa.”
(Armendariz, supra, 24 Cal.4th at p. 114.) As is obvious, the
main point of this passage is that where the degree of
substantive unconscionability is high — i.e., the contract terms
5
OTO, L.L.C. v. KHO
Chin, J., dissenting
are extremely harsh or unreasonable — “evidence of procedural
unconscionability” becomes less important, i.e., a court may
“ ‘disregard[] the regularity of the procedural process of the
contract formation’ ” and find the contract unconscionable based
solely on the high level of substantive unfairness. (Ibid.) This
court’s use of the phrase “vice versa” at the end of the second
sentence (ibid.) means only that evidence of procedural
unfairness becomes more important to a finding of
unconscionability as the degree of substantive unfairness
decreases. That is not the same as saying that “a relatively low
degree of substantive unconscionability may suffice” where the
degree of procedural unconscionability is “substantial.” (Maj.
opn., ante, at p. 20.) Notably, the majority cites not a single case
in which we have applied Armendariz in the manner the
majority now suggests.
Indeed, the very concept of “a relatively low degree of
substantive unconscionability” (maj. opn., ante, at p. 20) is
inconsistent with our prior pronouncements that a court may
not invalidate “one-sided contract provisions” upon a mere
showing that “the deal, in retrospect, was unfair or a bad
bargain” (Sanchez, supra, 61 Cal.4th at p. 911) or “gives one side
a greater benefit” (Pinnacle, supra, 55 Cal.4th at p. 246); that
the contract “must be ‘so one-sided as to “shock the
conscience” ’ ” (Id. at p. 246), or “ ‘overly harsh,’ ‘unduly
oppressive,’ [or] ‘unreasonably favorable’ ” (Sanchez, at p. 911);
and that the party alleging unconscionability must establish “a
substantial degree of unfairness beyonda simple old-fashioned
bad bargain
’ ” (Sonic II, 57 Cal.4th at p. 1160, italics added).
The majority’s assertion that “a relatively low degree of
substantive unconscionability may suffice” (maj. opn., ante, at p.
6
OTO, L.L.C. v. KHO
Chin, J., dissenting
22) simply cannot be squared with these principles, and the
majority does not even attempt to do so.
For its assertion, the majority more directly relies on two
Court of Appeal decisions (maj. opn., ante, at p. 22), but neither
is persuasive. In the first — Carmona v. Lincoln Millennium
Car Wash
, Inc. (2014) 226 Cal.App.4th 74, 85 — the Court of
Appeal stated: “In light of the high degree of procedural
unconscionability, even a low degree of substantive
unconscionability could render the arbitration agreement
unconscionable.” But the court cited no authority of any kind to
support this bare assertion. (Ibid.) And the statement was
dictum because, in the very next sentence, the court stated that
“[t]he degree of substantive unconscionability here was not
particularly low.” (Ibid., italics added.
In the second decision the majority cites — A & M Produce
Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 487 (A & M
Produce
) — the Court of Appeal stated that the enforceability of
a clause containing an “unreasonable risk reallocation[] . . . is
tied to the procedural aspects of unconscionability [citation]
such that the greater the unfair surprise or inequality of
bargaining power, the less unreasonable the risk reallocation
which will be tolerated.” But in making this statement, the
court cited no supporting decision from either California or any
other jurisdiction; indeed, it acknowledged that regarding “the
importance
of
both”
procedural
and
substantive
unconscionability, there was “little California precedent directly
on point.” (Ibid.) Moreover, like the statement in Carmona, the
statement in A & M was dictum, because the court never
subsequently applied it in analyzing the unconscionability
issue. In any event, read carefully, the statement says no more
than did Armendariz, i.e., that evidence of procedural
7
OTO, L.L.C. v. KHO
Chin, J., dissenting
unfairness becomes more important to a finding of
unconscionability as the degree of substantive unfairness
decreases. Again, that is not the same as saying that “a
relatively low degree of substantive unconscionability may
suffice” where the degree of procedural unconscionability is
“substantial.” (Maj. opn., ante, at p. 20.) Thus, neither A & M
nor Carmona constitutes reasoned or persuasive support for the
majority’s view, and no published California decision has
actually applied either that or a similar view to the facts of a
case.
This is an important issue, because the majority’s new rule
will significantly impact the enforceability of virtually all
mandatory, predispute arbitration agreements in the
employment context. This court has observed that “the
economic pressure” employers exert “on all but the most sought-
after employees” to sign such mandatory arbitration contracts
“may be particularly acute,” because the contract “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; see Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1245
(Baltazar); Sanchez, supra, 61 Cal.4th at p. 919; Sonic II, supra,
57 Cal.4th at p. 1134; Sonic-Calabasas A, Inc. v. Moreno (2011
51 Cal.4th 659, 685 (Sonic I); Little v. Auto Steigler, Inc. (2003
29 Cal.4th 1064, 1071 (Little).) Given this observation, in the
typical case of an employee who cannot afford to refuse or lose a
job because of an arbitration requirement, even were the other
procedural circumstances the majority discusses supported by
the record and recognized as significant by our case law —
considerations I address below — those circumstances would
not make the degree of procedural unconscionability here higher
8
OTO, L.L.C. v. KHO
Chin, J., dissenting
in any analytically or legally relevant sense. Supporting this
view is the fact that the majority in Sonic I found a “significant
element of procedural unconscionability” (Sonic I, supra, 51
Cal.4th at p. 686) based solely on the ground that “the
agreement was one of adhesion and imposed as a condition of
employment” (id. at p. 685, fn. 10).
For this reason, the majority’s assurance that an identical
arbitration provision “might pass muster under less coercive
circumstances” (maj. opn., ante, at p. 31) rings hollow. Because
of the economic pressures faced by prospective and existing
employees, the majority’s finding of unconscionability will
surely be the rule in the vast majority of cases in the
employment context, regardless of the other circumstances the
majority cites. In other words, with few exceptions, as to
employees presented with a “sign or you’re unemployed” choice,
the ability to read, reflect, and understand the agreement does
not make the situation “less coercive” in any meaningful sense.
(Maj. opn., ante, at p. 29.) More broadly, because it would not
be difficult for a court to find a “relatively low degree of
substantive” unfairness in an adhesion contract (maj. opn., ante,
at p. 20), the majority’s new rule casts significant doubt on the
enforceability of many contractual terms in the employment
context, not just arbitration provisions.
C. Procedural Unconscionability.
I now turn to my next point of disagreement with the
majority: its analysis of procedural unconscionability. Several
aspects of that analysis are inconsistent with both established
California law and the record in this case.
First, in finding “significant oppression” (maj. opn., ante,
at p. 16), the majority emphasizes that Kho “had no opportunity
9
OTO, L.L.C. v. KHO
Chin, J., dissenting
to read” the documents his employer — plaintiff One Toyota of
Oakland (OTO) — asked him to sign (maj. opn., ante, at p. 2),
and that OTO, by having an employee from its human resources
department “wait for the documents, . . . conveyed an
expectation that Kho sign them immediately, without
examination or consultation with counsel” (maj. opn., ante, at p.
16). However, in Sanchez, our procedural unconscionability
discussion gave no weight to sworn statements of the party
resisting arbitration that he “ ‘was presented with a stack of
documents,’ ” “ ‘was simply told . . . where to sign and/or initial
each one,’ ” and “ ‘was not given an opportunity to read any of
[them].’ ” (Sanchez, supra, 61 Cal.4th at p. 909.) Instead, we
explained that “even when a customer is assured it is not
necessary to read a standard form contract with an arbitration
clause, ‘it is generally unreasonable, in reliance on such
assurances, to neglect to read a written contract before signing
it.’ ” (Id. at p. 915.) Several of our Courts of Appeal have applied
this principle in the context of employment arbitration
agreements. (Avery v. Integrated Healthcare Holdings, Inc.
(2013) 218 Cal.App.4th 50, 65-66; 24-Hour Fitness, Inc. v.
Superior Court
(1998) 66 Cal.App.4th 1199, 1215.) Moreover, in
Sonic I, supra, 29 Cal.4th at page 686, the majority’s discussion
of procedural unconscionability noted that “many employees
may not give careful scrutiny to routine personnel documents
that employers ask them to sign.” These precedents are
inconsistent with the majority’s view that the degree of
procedural unconscionability here was higher because Kho did
not have an opportunity to read the documents and OTO
10
OTO, L.L.C. v. KHO
Chin, J., dissenting
“conveyed an expectation that [he] sign them immediately,
without examination.”1 (Maj. opn., ante, at p. 16.
Second, I disagree with the majority insofar as it
emphasizes that “[n]either [the] contents nor significance” of the
arbitration agreement “was explained” to Kho, that “there is no
indication” in the record the employee who presented the
agreement “had the knowledge or authority to explain its
terms,” and that OTO, by “select[ing] a low-level employee . . . to
present the [a]greement, creat[ed] the impression that no
request for an explanation was expected and any such request
would be unavailing.” (Maj. opn., ante, at p. 16.) The majority’s
reliance on the absence of evidence regarding the employee’s
ability and authority to explain the agreement’s terms is
inconsistent with the fact that Kho bears “[t]he burden of
proving unconscionability.” (Maj. opn., ante, at p. 14.) More
broadly, the majority’s consideration of these circumstances is
inconsistent with Sanchez and with the FAA. In Sanchez,
regarding procedural unconscionability, we stated that the
party seeking to enforce an arbitration agreement “was under
no obligation to highlight the arbitration clause of its contract”
and was not “required to specifically call that clause to [the other
party’s] attention.” (Sanchez, supra, 61 Cal.4th at p. 914.) We
1
The majority’s emphasis on these facts is also inconsistent
with its own assertions that the arbitration agreement’s text is
“ ‘visually impenetrable’ ” and virtually illegible (maj. opn., ante,
at p. 17), and that its “substance” is so “opaque” (ibid.) that “[i]t
would have been nearly impossible” for Kho “to understand the
contract’s meaning” (maj. opn., ante, at p. 18). If these
assertions are accurate, then why does the majority find it
significant that Kho had no opportunity to read the agreement?
11
OTO, L.L.C. v. KHO
Chin, J., dissenting
also stated that “[a]ny state law imposing such an obligation
would be preempted by the FAA.” (Ibid.
Third, I disagree that the “degree of procedural
unconscionability” here was “unusually” or “ ‘extraordinarily
high’ ” (maj. opn., ante, at pp. 2, 14) because “Kho was required
to sign the agreement to keep the job he had held for three years”
and OTO’s conduct “conveyed the impression that negotiation
efforts would be futile” (maj. opn., ante, at pp. 17, 18). These
circumstances are what make the contract adhesive in the first
place; as the majority earlier explains, “[a]n adhesive contract is
standardized, generally on a preprinted form, and offered by the
party with superior bargaining power ‘on a take-it-or-leave-it
basis.’ ” (Maj. opn., ante, at p. 14.) They are also characteristics
of all “mandatory employment arbitration agreements,” which
this court has defined as “arbitration agreements that are
conditions of new or continuing employment.” (Sonic II, supra,
57 Cal.4th at p. 1130.) Thus, these circumstances neither
distinguish this case in any way nor support a finding that there
was a degree of procedural unconscionability beyond that found
with any adhesive, mandatory employment arbitration
agreement.
Regarding surprise, the majority begins its analysis by
assailing the arbitration agreement as being “a paragon of
prolixity.” (Maj. opn., ante, at p. 17.) However, “prolixity”
simply means the state or quality of being lengthy, protracted
and drawn out, perhaps unduly or unnecessarily so. (12 Oxford
English Dict. (2d ed.1989) p. 608; Webster’s 3d New Internat.
Dict. (2002) p. 1814; see Black’s Law Dict. (10th ed. 2014) p.
1406, col. 1 [“prolixity” is “[t]he unnecessary and superfluous
recitation of facts and legal arguments in pleading or
evidence”].) It is doubtful that the arbitration agreement in this
12
OTO, L.L.C. v. KHO
Chin, J., dissenting
case, consisting of a “single” paragraph with “51 lines,” meets
this definition, let alone constitutes a “paragon” — i.e., a perfect
example — of this concept. (Maj. opn., ante, at p. 17.
In any event, contrary to what the majority suggests, our
cases establish that prolixity itself is not problematic; for
purposes of a procedural unconscionability analysis, surprise
“ ‘ “occurs . . . where the allegedly unconscionable provision is
hidden within a prolix printed form.” ’ ” (Pinnacle, supra, 55
Cal.4th at p. 247, italics added.) There is nothing hidden about
the arbitration agreement in this case. It is not buried in a
multipage document that addresses numerous other matters,
but appears in a relatively short document that almost
exclusively addresses arbitration. In a heading at the top of the
agreement’s first page, set apart from the body of the agreement,
the word “ARBITRATION” appears in large, bolded, all caps
type. In a stand-alone provision at the top of the second page,
the agreement states, in large, all caps, italicized type, that Kho
is “AGREEING TO THIS BINDING ARBITRATION
PROVISION.” When Kho signed the arbitration agreement, he
also signed a separate two-page agreement containing a stand-
alone, bolded-type paragraph explaining that the parties
understood and were voluntarily agreeing to resolve “any
disputes” regarding Kho’s employment “exclusively in
accordance with binding arbitration,” and setting forth some of
the features of the arbitration procedure, i.e., “a retired
California Superior Court Judge” will conduct the arbitration
and “[t]he arbitration proceedings shall be governed by the
Federal Arbitration Act, and carried out in conformity with the
procedures of the California Arbitration Act.” The separate
agreement also expressly stated that Kho had executed or would
“execute a more comprehensive arbitration agreement with the
13
OTO, L.L.C. v. KHO
Chin, J., dissenting
Company.” In finding surprise, the majority simply ignores
these considerations, as well as precedent finding no surprise
under analogous circumstances. (Pinnacle, supra, 55 Cal.4th at
p. 247, fn. 12 [in finding no surprise, citing fact that arbitration
provisions “appear in a separate article under a bold,
capitalized, and underlined caption titled ‘ARTICLE XVIII
CONSTRUCTION DISPUTES’ ”]; Bigler v. Harker School
(2013) 213 Cal.App.4th 727, 737 [no surprise where arbitration
clause “located at the top of the second page in a two-page
document with the heading ‘Arbitration’ in boldfaced font”];
Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th
1159, 1165 [emphasizing that arbitration provision “was printed
on a separate page” with “ ‘Arbitration Addendum’ at the top,”
and “was signed separately”].
For the preceding reasons, I conclude that the arbitration
provision here is not unusual and that its substance does not
contribute to a finding that the “degree of procedural
unconscionability” in this case was, as the majority asserts,
“unusually” and “ ‘extraordinarily high.’ ” (Maj. opn., ante, at
pp. 2, 14.) Supporting this conclusion is the fact that in cases
involving a virtually identical arbitration provision, we did not
find an element of surprise that increased the degree of
procedural unconscionability. (Sonic II, supra, 57 Cal.4th at pp.
1125-1126; Sonic I, supra, 51 Cal.4th at pp. 669-670; Little,
supra, 29 Cal.4th at pp. 1069-1070.
The majority concludes its discussion of procedural
unconscionability with a line of analysis that California courts
have long and uniformly rejected. The majority suggests that
the arbitration agreement here is unenforceable because: (1
arbitration “ ‘ “is a matter of consent, not coercion” ’ ”; and (2) we
cannot “infer[]” that Kho’s “consent” to arbitrate was
14
OTO, L.L.C. v. KHO
Chin, J., dissenting
“voluntary,” given that his execution of the arbitration
agreement was “induced . . . through ‘sharp practices’ and
surprise” and he almost certainly did not know “he was giving
up his Berman rights.” (Maj. opn., ante, at p. 19.) However,
almost 40 years ago, we held that contracts of adhesion are “fully
enforceable according to [their] terms” absent certain
circumstances (Graham, supra, 28 Cal.3d at p. 819), even
though they do not fit “the classical model of ‘free’ contracting
by parties of equal or near-equal bargaining strength,” given
that the weaker party’s only choices are “ ‘to adhere to the
contract or reject it’ ” (id. at p. 817). About 20 years later, we
held that mandatory employment arbitration contracts are
enforceable unless they contain “one-sided, substantively
unconscionable terms,” even though “voluntariness” is the
“bedrock justification” for arbitration and almost all employees
presented with such contracts are under “acute” “economic
pressure” to sign and effectively have no “choice” but to do so.
(Armendariz, supra, 24 Cal.4th at p. 115.) In subsequent years,
we have repeatedly affirmed that mandatory employment
arbitration agreements are enforceable unless substantively
unconscionable. (Baltazar, supra, 62 Cal.4th 1237, 1241; Sonic
II
, supra, 57 Cal.4th at p. 1125; Sonic I, supra, 51 Cal.4th at p.
677; Pearson Dental Supplies, Inc. v. Superior Court (2010) 48
Cal.4th 665, 677; Little, supra, 29 Cal.4th at pp. 1068-1069.
Consistent with our decisions, California’s Courts of
Appeal have expressly rejected the majority’s lack-of-consent
line of analysis. For example, in A & M Produce, supra, 135
Cal.App.3d at pp. 486-487, the court explained: “[T]he mere fact
that a contract term is not read or understood by the nondrafting
party or that the drafting party occupies a superior bargaining
position will not authorize a court to refuse to enforce the
15
OTO, L.L.C. v. KHO
Chin, J., dissenting
contract. Although an argument can be made that contract
terms not actively negotiated between the parties fall outside
the ‘circle of assent’ which constitutes the actual agreement
[citation], commercial practicalities dictate that unbargained-
for terms only be denied enforcement where they are also
substantively unreasonable.” (Fn. omitted; see also Franco v.
Arakelian Enterprises, Inc.
(2015) 234 Cal.App.4th 947, 956
[“waivers that are obtained as a condition of employment . . . are
not categorically invalid or unenforceable”]; Gutierrez v.
Autowest, Inc.
(2003) 114 Cal.App.4th 77, 88 [“unbargained-for
term” in contract of adhesion, even if “not read or understood by
the nondrafting party,” is enforceable unless “substantively
unreasonable”]; Lagatree v. Luce, Forward, Hamilton & Scripps
(1999) 74 Cal.App.4th 1105, 1129 [“compulsory nature of a
predispute arbitration agreement does not render the
agreement unenforceable on grounds of coercion or for lack of
voluntariness”]; San Francisco Newspaper Printing Co. v.
Superior Court
(1985) 170 Cal.App. 3d 438, 443 [“failing to read
the contract is no excuse, otherwise all contracts of adhesion
would be unenforceable at the whim of the adhering party”].
Insofar as the majority’s analysis is contrary to this unbroken
line of California authority, I disagree with it.2
2
To the extent the majority’s FAA preemption analysis
raises a similar “concern[]” about “consent” (maj. opn., ante, at
p. 33), it is erroneous for the same reason. (See Lamps Plus,
Inc. v. Varela (2019) __ U.S. __, __ [139 S.Ct. 1407, 1420] (dis.
opn. of Ginsburg, J.) [“Arbitration clauses, the Court has
decreed, may preclude judicial remedies even when submission
to arbitration is made a take-it-or-leave-it condition of
employment”]; Carnival Cruise Lines, Inc. v. Shute (1991) 499
U.S. 585, 600 (dis. opn. of Stevens, J.) [“contracts of adhesion . . .
offered on a take-or-leave basis” are enforceable if reasonable,
16
OTO, L.L.C. v. KHO
Chin, J., dissenting
Nevertheless, I ultimately agree there was sufficient
procedural unconscionability here — given the adhesive nature
of the contract and the circumstances under which OTO
presented it to Kho for signature — to warrant scrutiny of the
agreement’s substantive unconscionability. To that issue, I now
turn.
D. Substantive Unconscionability.
The majority’s analysis of substantive unconscionability is
difficult to follow, largely due to its shifting approach to that
issue. Initially, the majority seems to suggest that substantive
unconscionability is irrelevant because there was “an unusually
high degree of procedural unconscionability” here, and “an
employee may not be coerced or misled into . . . trad[ing]” the
Berman process for “a litigation-like arbitration procedure,”
“[e]ven if” that procedure “may be an acceptable substitute for
the Berman process in other circumstances.” (Maj. opn., ante,
at p. 2.) Later, however, the majority expressly acknowledges
that “[b]oth procedural and substantive unconscionability must
be shown for the [unconscionability] defense to be established”
(maj. opn., ante, at p. 13) and asserts that at least “a relatively
low degree of substantive unconscionability” is required to void
the agreement, notwithstanding “the substantial procedural
unconscionability here” (maj. opn., ante, at p. 21). At one point,
notwithstanding argument that they cannot “justifiably be
enforced . . . under traditional contract theory because the
adhering party generally enters into them without manifesting
knowing and voluntary consent to all their terms”].) The
majority’s discussion of lack of consent, though off the mark as
to Kho’s unconscionability claim and FAA preemption, would be
apropos had Kho asserted and pursued a separate contract
defense: fraud in the execution of the contract.
17
OTO, L.L.C. v. KHO
Chin, J., dissenting
the majority indicates that “ ‘the [substantive] unconscionability
inquiry focuses on whether the arbitral scheme imposes costs
and risks on a wage claimant that make the resolution of the
wage dispute inaccessible and unaffordable,’ thus effectively
blocking every forum for redress including arbitration itself.”
(Maj. opn., ante, at p. 12.) At another point, the majority
indicates that the question is whether the arbitral scheme
“offer[s] employees an effective means to pursue claims for
unpaid wages, and [does] not impose unfair costs or risks on
them or erect other barriers to the vindication of their statutory
rights.” (Maj. opn., ante, at p. 27.) At still another point, the
majority states that the question is whether “the bargain”
between the parties “was sufficiently one-sided as to render the
agreement unenforceable” (maj. opn., ante, at p. 32), i.e., “so
unfairly one-sided that it should not be enforced” (maj. opn.,
ante, at p. 11). Finally, shifting gears one last time, the majority
declares in the final paragraph of its analysis that the
substantively unconscionable “question” here “[u]ltimately” is
whether the bargain was simply “unfair.” (Maj. opn., ante, at p.
32.
This court’s most relevant decision on the issue — Sonic
II — is quite specific as to the applicable standard. Under the
majority opinion in that case, an agreement requiring
arbitration of claims otherwise subject to the Berman procedure
is not substantively unconscionable “so long as the arbitral
scheme, however designed, provides employees with an
accessible, affordable process for resolving wage disputes that
does not ‘effectively block[] every forum for the redress of [wage]
disputes, including arbitration itself.’ ” (Sonic II, supra, 57
Cal.4th at pp. 1157-1158.) The majority here expressly
acknowledges that the majority opinion in Sonic II “focused
18
OTO, L.L.C. v. KHO
Chin, J., dissenting
repeatedly on the need for accessible and affordable arbitration”
(maj. opn., ante, at p. 11), and that under Sonic II, “[a]n
agreement to arbitrate wage disputes can be enforceable so long
as it provides an accessible and affordable process for resolving
those disputes” (maj. opn., ante, at pp. 1-2). Indeed, the majority
even sets forth the Sonic II test at several points. (Maj. opn.,
ante, at pp. 12, 29). Surprisingly, however, it never applies that
test; it nowhere states that arbitration under the agreement
here is inaccessible or unaffordable to the point that it
“ ‘effectively block[s] every forum for the redress of [wage]
disputes, including arbitration itself.’ ” (Sonic II, at p. 1158.
Indeed, in several ways, the majority’s analysis supports
the conclusion that the arbitration agreement here does not
meet the Sonic II test for substantive unconscionability. To
begin with, the majority concedes that that the arbitration
process here — which permits “discovery” (maj. opn., ante, at p.
3) and calls for “the same pleading, evidence, and motion
practice rules that govern civil litigation” (maj. opn., ante, at p.
24, fn. 14) — is no more complicated than ordinary civil
litigation . . . .” (Maj. opn., ante, at p. 31.) Thus, arbitration
under the agreement cannot be any more unaffordable or
inaccessible for Kho than “ordinary civil litigation” (ibid.), a
system that, according to the majority, has been “carefully
crafted to ensure fairness to both sides” and is not “per se unfair”
(maj. opn., ante, at p. 26). The majority also concedes that under
the arbitration agreement, Kho would be entitled to “reasonable
attorney fees and costs” were he to be “the prevailing party in
‘any action brought for the nonpayment of wages.’ ” (Maj. opn.,
ante, at p. 30.) This aspect of the agreement, the majority
observes, “may mitigate some financial burden” of the
arbitration. (Ibid.
19
OTO, L.L.C. v. KHO
Chin, J., dissenting
The majority also recognizes that in Little, we held in the
arbitration context that use of “litigation-like procedures” does
not necessarily . . . make” a mandatory employment arbitration
agreement “unconscionable.” (Maj. opn., ante, at p. 26, italics
added.) Notably, in reaching this conclusion, we rejected the
claim that “such procedures detract from the inherent
informality of arbitration” and necessarily “inordinately benefit
[employers] rather than [employees].” (Little, supra, 29 Cal.4th
at p. 1075, fn. 1.) Consistent with Little’s analysis, the majority
concedes that, for certain claims, “it may well be that an
arbitration process closely resembling civil litigation can be as
advantageous for the employee as for the employer.” (Maj. opn.,
ante, at pp. 26-27.
Inexplicably discarding Sonic II’s test for substantive
unconscionability, the majority bases it conclusion on the
alternative substantive unconscionability tests it sets forth.
According to the majority, because “Kho surrendered the full
panoply of Berman procedures and assistance,” and “received”
nothing “in return” but “access to a formal and highly structured
arbitration process,” his “bargain” with OTO was both “unfair”
and “sufficiently one-sided as to render the [arbitration]
agreement unenforceable.” (Maj. opn., ante, at p. 32.
I disagree with the majority’s analysis and conclusion in
several respects. Initially, as already explained, our precedents
establish that for an agreement to be substantively
unconscionable, it is not enough that it is merely “unfair” or
“one-sided.” (Maj. opn., ante, at p. 32.) Rather, it must cause “a
substantial degree of unfairness beyonda simple old-fashioned
bad bargain
.’ ” (Sonic II, supra, 57 Cal.4th at p. 1160, italics
added.) It “must be ‘so one-sided as to “shock the conscience” ’ ”
(Pinnacle, supra, 55 Cal.4th at p. 246), or, as alternatively
20
OTO, L.L.C. v. KHO
Chin, J., dissenting
formulated, “ ‘overly harsh,’ ‘unduly oppressive,’ [or]
unreasonably favorable.’ ” (Sanchez, supra, 61 Cal.4th at p.
911.
Next, to the extent an evaluation of the benefits Kho
relinquished and received is necessary, the majority’s analysis
is improperly narrow. As the majority acknowledges, “ ‘the
unconscionability inquiry requires a court to examine the
totality of the agreement’s substantive terms’ ” and to determine
the fairness of the parties’ “ ‘overall bargain.’ ” (Maj. opn., ante,
at p. 11.) Consistent with this observation, under basic contract
law, “new and different consideration” is not required for “every
individual promise in a contract.” (Martin v. World Savings &
Loan Assn.
(2001) 92 Cal.App.4th 803, 809.) Instead, “one
promise in a contract ‘may be consideration for several counter
promises.’ ” (Ibid; see Foley v. Interactive Data Corp. (1988) 47
Cal.3d 654, 679 [“ ‘ “[a] single and undivided consideration may
be bargained for and given as the agreed equivalent of one
promise or of two promises or of many promises” ’ ”].
Viewed from this perspective, Kho received several
substantial benefits “in return” for agreeing to arbitration.
(Maj. opn., ante, at p. 29.) First and foremost, he received the
benefit of continued employment. Kho was an at-will employee
and, according to the majority, “was required to sign the
agreement to keep [his] job.” (Maj. opn., ante, at p. 16.) Under
our precedents, Kho’s “ ‘continuing employment’ ” under such
circumstances constitutes “ ‘consideration’ ” from OTO that
“ ‘support[s]’ ” the arbitration agreement. (Asmus v. Pacific Bell
(2000) 23 Cal.4th 1, 14; see DiGiacinto v. Ameriko-Omserv Corp.
(1997) 59 Cal.App.4th 629, 638 [“ ‘neither party to an at-will
relationship has any obligation to perform in the future, and so
doing so can provide valuable consideration for a modification of
21
OTO, L.L.C. v. KHO
Chin, J., dissenting
the contract’ ”].) Second, the agreement here, considered in its
entirety, is not merely a Berman waiver, but is a broad, bilateral
arbitration provision that applies, with only a few exceptions, to
“all disputes” between the parties “arising from, related to, or
having any relationship or connection whatsoever with [Kho’s]
seeking employment with, employment by, or other association
with” OTO. It thus confers on Kho the benefits of arbitration as
to claims not subject to the Berman procedure, unless it may be
said there are no such benefits in any covered context. The
majority improperly ignores these benefits and incorrectly
evaluates the arbitration agreement as if it were only “a waiver
of Berman procedures.” (Maj. opn., ante, at p. 11.
Moreover, under basic contract law, the receipt of a benefit
is not the exclusive measure of consideration; “a detriment to”
one party is sufficient consideration for a contract even if the
other contracting party receives no “benefit for his promise.”
(Westphal v. Nevills (1891) 92 Cal. 545, 548.) As here relevant,
“ ‘[a]ny suspension or forbearance of a legal right constitutes a
sufficient consideration.’ ” (Adolph Ramish, Inc. v. Woodruff
(1934) 2 Cal.2d 190, 207.) In this case, OTO’s “promise[] . . . to
arbitrate [its] disputes” with Kho and “to forego” its right to
“judicial determination” of those disputes — including the right
to a jury trial — “provide[d] consideration” for the agreement,
as did Kho’s similar promise. (Strotz v. Dean Witter Reynolds,
Inc.
(1990) 223 Cal.App.3d 208, 216; see Peleg v. Neiman Marcus
Group
, Inc. (2012) 204 Cal.App.4th 1425, 1449 [“ ‘mutual
promises to submit all employment disputes to arbitration
constituted sufficient consideration, because both parties were
bound to the promises to arbitrate’ ”].
In any event, even insofar as the agreement constitutes a
Berman waiver, I disagree that Kho received nothing “in return”
22
OTO, L.L.C. v. KHO
Chin, J., dissenting
but “access to a formal and highly structured arbitration
process.” (Maj. opn., ante, at p. 29.) The Berman procedure is
potentially a three-step process. First is the administrative
hearing, assuming the Labor Commissioner, as a matter of
discretion, accepts the matter and decides to hold a hearing.
(Maj. opn., ante, at p. 7.) Step two is a trial de novo in superior
court (maj. opn., ante, at p. 8), which either party may request
without having even participated in the administrative
procedure. (Jones v. Basich (1986) 176 Cal.App.3d 513.) This
de novo proceeding is “ ‘ “a trial anew in the fullest sense” ’ ”
(Post v. Palo/Haklar & Associates (2000) 23 Cal.4th 942, 948),
in which the superior court proceeds “ ‘as a court of original
jurisdiction, with full power to hear and determine [the matter]
as if it had never been before the labor commissioner’ ” (Murphy
v. Kenneth Cole Productions, Inc.
(2007) 40 Cal.4th 1094, 1119).
Thus, as the majority notes, in the de novo proceeding,
“litigation formalities may apply.” (Maj. opn., ante, at p. 26.
Moreover, the administrative decision “is ‘entitled to no weight
whatsoever.’ ” (Post, at p. 948) and the employer “is not bound
by the defenses it raised” at the Berman hearing; it may
“abandon, change, or add defenses not brought before the Labor
Commissioner” (Murphy, at p. 1119) and may present “entirely
new evidence” (Post, at p. 948). Step three of the Berman
procedure is “a conventional appeal to an appropriate appellate
court” after the trial court’s decision upon the de novo hearing.
(Ibid.
In signing the arbitration agreement, as to claims covered
by the Berman statutes, Kho gained access to a procedure with
no preliminary, nonbinding administrative process; no potential
for formal civil litigation in court; only limited judicial review;
and some, but not all, of the “litigation formalities” that, as the
23
OTO, L.L.C. v. KHO
Chin, J., dissenting
majority concedes, may apply in a de novo proceeding under the
Berman statutes. (Maj. opn., ante, at p. 26.) And he gained
OTO’s legal commitment and obligation to pay any and all costs
“unique” to this procedure. (Armendariz, supra, 24 Cal.4th at p.
113.) Thus, “in return” for waiving the Berman procedure, Kho
received considerably more than just “access to a formal and
highly structured arbitration process.” (Maj. opn., ante, at p.
29.) The majority may think he made a “ ‘bad bargain’ ” (Sonic
II
, supra, 57 Cal.4th at p. 1160), that he “could have done better”
(id. at p. 1148), or that the agreement “ ‘gives [OTO] a greater
benefit’ ” (id. at p. 1160), but our precedents preclude us from
declaring an agreement to be unconscionable and unenforceable
on any of those grounds.
In an attempt to diminish the value of what Kho received
and inflate the value of what he gave up, the majority asserts
that the Berman procedures “discourage[]” de novo proceedings
by requiring appealing employers to post undertakings and
requiring unsuccessful appellants to pay the other side’s costs
and reasonable attorney fees. (Maj. opn., ante, at p. 26.) But
the former requirement would seem to provide little
disincentive, given that the employer’s only alternative to filing
an appeal and posting an undertaking is actually paying the
award. And the latter provision also discourages employees from
appealing, because it requires them to pay costs and attorney
fees if they appeal and are “unsuccessful,” meaning they do not
obtain an “award[] . . . greater than zero.” (Lab. Code, § 98.2,
subd. (c).) Of course, the record here provides further reason to
doubt the deterrent value of these provisions; after the
administrative decision, OTO, which declined even to
participate in the Berman hearing, filed for a de novo trial,
completely undeterred by the statutes. In any event, having
24
OTO, L.L.C. v. KHO
Chin, J., dissenting
provisions that assertedly provide some undetermined and
factually unproven disincentive to seeking a trial de novo is not
at all the same as having access to an arbitration procedure that
enables Kho to eliminate even the possibility that recovery of
unpaid wages will require a formal civil trial in court — with
attendant “litigation formalities” (maj. opn., ante, at p.
27) — after a preliminary and nonbinding administrative
procedure or as a matter of first resort in lieu of that procedure.
As the majority explains, “[i]t is the opportunity to expedite and
simplify the process that can motivate informed parties to agree
to arbitration.”3 (Maj. opn., ante, at p. 26.
3
In rejecting my analysis, the majority relies on the
statement of counsel for the Labor Commissioner at oral
argument that his “understand[ing]” is that there are “probably”
fewer than 500 de novo proceedings per year. (See maj. opn.,
ante, at p. 27, fn. 17.) Reliance on this statement of counsel’s
“understand[ing],” which obviously lacks foundation and is
hearsay, is improper under our “ ‘settled’ ” rule that “ ‘on a direct
appeal from a judgment [we] will not consider matters outside
the record.’ ” (People v. Gardner (1969) 71 Cal.2d 843, 854.) The
majority in both Sonic I and Sonic II followed this settled rule
and expressly declined to rely on factual representations about
the arbitration process counsel made “[a]t oral argument” in an
effort to support the arbitration agreement’s validity. (Sonic II,
supra, 57 Cal.4th at p. 1147; Sonic I, supra, 51 Cal.4th at p. 681,
fn. 4.) It is noteworthy that the majority here ignores the rule
in order to establish the arbitration agreement’s invalidity, an
issue on which Kho bears the burden of proof. The majority’s
inadequate response — that OTO did not “challenge[]” counsel’s
statement (maj. opn., ante, at p. 28, fn. 18) — fails to recognize
that counsel made the statement during rebuttal argument,
after OTO’s argument, so OTO had no opportunity to respond.
In any event, the majority’s response misses an essential point:
By agreeing to arbitration, Kho eliminated any possibility that
recovery of unpaid wages would require a formal civil trial in
25
OTO, L.L.C. v. KHO
Chin, J., dissenting
The majority’s view that Kho received little or nothing “in
return” (maj. opn., ante, at p. 32) for the Berman waiver rests on
numerous other exaggerations, unproven or erroneous
assumptions, miscalculations, and/or mischaracterizations
regarding the value of the Berman procedures. First, as the
majority acknowledges, when an employee files an
administrative claim, “[t]here is no [statutory] requirement that
a Berman hearing be held” (maj. opn., ante, at p. 32) and the
Labor Commissioner has “discretion to . . . take ‘no further
action . . . on the complaint’ ” (ibid., quoting Lab. Code, § 98,
subd. (a)). Thus, when Kho signed the arbitration agreement —
which is the relevant time for assessing unconscionability (Civ.
Code, § 1670.5, subd. (a)) — it was entirely speculative whether
any of the Berman procedure’s asserted benefits would be
available to him, and the only thing he actually relinquished
was the opportunity to ask the Labor Commissioner to exercise
discretion
to conduct legally nonbinding administrative
proceedings on a claim.
Second, the majority’s view that the Berman
administrative procedure is more advantageous for employees
because it has “no discovery process” (maj. opn., ante, at p. 7) is
inconsistent with our case law. In Armendariz, supra, 24
Cal.4th 83, which involved a mandatory employment arbitration
agreement, the majority held that “the provision of adequate
discovery” is one of the “minimum requirements” of a valid and
enforceable arbitration provision (id. at p. 91, italics added) and
explained that “from [an] employee’s point of view,” more
“limited discovery” is typically one of the “potential
court, either after a nonbinding administrative procedure or in
lieu of such a procedure.
26
OTO, L.L.C. v. KHO
Chin, J., dissenting
disadvantages” of arbitration (id. at p. 115, italics added). In
Gentry, supra, 42 Cal.4th at page 457, the majority extended the
discovery requirement to an unpaid wage claim. Kho’s actions
confirm this court’s previous statements regarding the
importance of discovery to employees with wage claims; during
the administrative Berman proceedings, he “requested that a
subpoena be issued for various work related documents.”
Third, the Berman procedure is not, as the majority
asserts, necessarily “ ‘speedy’ ” or “expedient.” (Maj. opn., ante,
at pp. 24, 25.) As explained above, a Berman procedure is
potentially a three-step, combined administrative and judicial
process, which may include a civil trial in court with “litigation
formalities.” (Maj. opn., ante, at p. 16.) This three-step process
has the potential to substantially delay any recovery. Indeed,
the first administrative step by itself can take years. (Sonic I,
supra, 51 Cal.4th at p. 681, fn. 5.) [noting several
“documented” cases in which it took “slightly under one year” to
commence the Berman hearing, and one in which it took
“slightly under four years”].) In this case, for example, the
Berman hearing was not held for about 10 months after Kho
filed his claim, and the Labor Commissioner’s award was made
some 16 months after Kho’s termination. Two weeks later, OTO
requested a trial de novo. (Maj. opn., ante, at pp. 5, 33.) Thus,
nothing at the time that Kho signed the contract — and nothing
that actually happened in the Berman proceedings that followed
Kho’s termination — supports the majority’s view that, by
signing the arbitration agreement, Kho gave up a “ ‘speedy’ ” or
“expedient” administrative procedure. (Maj. opn., ante, at pp.
24, 25.) Nor is there any basis in the record for the majority’s
implicit conclusion that arbitration under the agreement
here —
which involves no
preliminary, nonbinding
27
OTO, L.L.C. v. KHO
Chin, J., dissenting
administrative process and only limited appellate review —
would take longer than the Berman procedure. The majority’s
reliance on factually unsupported and unproven assumptions
about the Berman procedure’s speed is contrary to the fact that
Kho bears “[t]he burden of proving unconscionability.”4 (Maj.
opn., ante, at p. 14.
Indeed, in light of the facts of this case and the Sonic II
majority’s discussion of this issue, the majority’s steadfast
reliance here on the asserted speediness of the Berman
procedure is as ironic as it is legally erroneous. In Sonic II, I
argued that the potentially three-step Berman procedure is not
necessarily “speedier or more streamlined than arbitration.”
(Sonic II, supra, 57 Cal.4th at p. 1181 (conc. & dis. opn. of Chin,
J.).) The majority rejected my argument, asserting it rested on
“bare assertions” that had “no evidentiary support.” (Sonic II,
at p. 1167.) At the same time, the majority left the question
open, “direct[ing] the trial court on remand to consider” this
issue — and the claim of unconscionability — “in light of any
relevant evidence.” (Sonic II, supra, 54 Cal.4th at p. 1162.
Contrary to that admonition, the majority here dismisses the
4
The majority concedes that resolution of this case through
the Berman administrative process “has not been speedy,” but
asserts that “the delay is largely attributable to” OTO. (Maj.
opn., ante, at p. 25, fn. 14.) The majority offers no factual basis
for this assertion, and nothing in the record supports it. For
example, nothing indicates why it took several months just for
Kho to receive a response from the Labor Commissioner to his
request for a Berman hearing, or why the hearing was finally
set for “some 9 months” after he made his request. (Maj. opn.,
ante, at p. 4.) In any event, whether OTO or a representative of
the Labor Commissioner was responsible for the delay is
irrelevant to my point that the Berman process is not
necessarily speedy.
28
OTO, L.L.C. v. KHO
Chin, J., dissenting
“relevant evidence” in the record showing that the Berman
procedure is not speedy. (Ibid.) Instead of considering that
evidence, the majority does precisely what the Sonic II majority
incorrectly accused me of doing in that case: relying on “bare
assertions” that have “no evidentiary support.”5 (Sonic II, at p.
1167.
Fourth, the Berman procedure is not as “ ‘informal’ ” as
the majority suggests. (Maj. opn., ante, at p. 7.) The Labor
Commissioner’s published policies and procedures stress that
Berman hearings “are formal procedures” at which each party
has the right to be represented by counsel, to present evidence,
to testify under oath, to have other witnesses testify under oath,
to cross-examine the opposing party and witnesses, and to
subpoena witnesses, documents and records. (Dept. of
Industrial Relations, Div. of Labor Stds. Enforcement (DLSE),
Policies and Procedures for Wage Claim Processing (2012 rev.
pp. 2–4 (DLSE Policies).) Moreover, the judicial trial de novo
procedure to which either side is entitled after a Berman
5
The Sonic II majority was incorrect about my analysis
because I expressly referenced the fact that the employer in that
case had “documented” three cases in which it took “a year or
more” just to commence the Berman hearing. (Sonic II, supra,
57 Cal.4th at p. 1181 (conc. & dis. opn. of Chin, J.); see Sonic I,
51 Cal.4th, supra, at p. 681, fn. 5 [petition to compel arbitration
“documented” two cases in which it took “slightly under one
year” to commence the Berman hearing, and one in which it took
“slightly under four years”].) The Sonic II majority simply chose
to ignore this reference and the documented evidence in the
record. The majority here adopts the same head-in-the-sand
approach, simply dismissing evidence that the Berman
procedure is not, in reality, speedy, and relying instead on
assertions about what the Berman procedure was, in theory “
‘designed to provide.’ ” (Maj. opn., ante, at p. 7.
29
OTO, L.L.C. v. KHO
Chin, J., dissenting
hearing is ordinary civil litigation, including both trial in the
superior court and appeal. At both judicial levels, as the
majority acknowledges, “litigation formalities may apply.” (Maj.
opn., ante, at p. 26.) Thus, all of the features of the arbitration
agreement that are problematic for the majority — a superior
court judge, discovery, and rules of pleading, evidence and
motion practice — are actually built into the Berman procedure,
and then some.
The majority emphasizes that the deputy labor
commissioner who conducts the Berman hearing “can explain
terminology and assist with witness examination.” (Maj. opn.,
ante, at p. 22.) But nothing requires the hearing officer to
provide such help; the decision whether to do so is left to the
hearing officer’s “sole authority and discretion.” (DLSE Policies,
supra, at p. 3.) In any event, nothing in the arbitration
agreement precludes the arbitrator from providing similar
assistance, and the majority never asserts otherwise. (See Sonic
II
, supra, 57 Cal.4th at p. 1164 [“arbitrators have discretion to
decide on features of arbitration that are not specified in the
agreement”]; Sanchez v. Western Pizza Enterprises, Inc. (2009
172 Cal.App.4th 154, 177 [“An arbitrator ordinarily has broad
discretion with respect to the procedures and law governing the
arbitration”].
Fifth, the majority’s discussion of the relative ease of
initiating arbitration and the Berman procedure is faulty in
several respects. The arbitration agreement is problematic for
the majority because it “does not explain how to initiate
arbitration.” (Maj. opn., ante, at p. 21.) However, the second
agreement Kho signed when he executed the arbitration
agreement informed him that he should “notify the Dealership’s
General Manager in writing” if he “dispute[d] the amount of
30
OTO, L.L.C. v. KHO
Chin, J., dissenting
wages paid to” him. This agreement informed Kho that all he
had to do to initiate arbitration was to submit to OTO a written
claim for unpaid wages. Moreover, the arbitration agreement
itself expressly referenced and incorporated — by both name
and specific statutory citation — the California Arbitration Act
(Code Civ. Proc., § 1280 et seq.), which sets forth the petition
procedure for initiating arbitration if “a party to the
[arbitration] agreement refuses to arbitrate” a controversy.
(Code Civ. Proc., § 1281.2.) Notably, although we dealt with
similar arbitration agreements in Sonic I, Sonic II, and Little,
in none of those decisions did we even mention their failure to
explain how to initiate arbitration.
On the other side of its “initiation” equation, the majority,
in relying on two wage orders of the Industrial Welfare
Commission (IWC) (maj. opn., ante, at p. 22), is truly grasping
at straws. To begin with, the majority does not suggest, and
nothing in the record indicates, that these wage orders were
ever handed to Koh, in his possession, or called to his attention
in any way. Indeed, Kho could not have seen one of the wage
orders, because it post-dated his employment with OTO by
almost five years. (IWC Wage Order No. MW-2019.) The other
order states, contrary to the majority’s assertion, that posting is
unnecessary “[w]here the location of work or other conditions
make [posting] impractical,” in which case the employer need
only “keep a copy of th[e] order and make it available to every
employee upon request.” (IWC Wage Order No. 4-2001, § 22.
Again, the majority does not suggest, and nothing in the record
indicates, that the wage order was actually posted at Kho’s
worksite.
Even had the wage order that actually existed when Kho
worked at OTO been posted, nothing suggests Kho ever saw it,
31
OTO, L.L.C. v. KHO
Chin, J., dissenting
let alone read it. And even had he read it, he surely would not
have understood it if, as the majority asserts, “[i]t would have
been nearly impossible” for him “to understand” the arbitration
agreement’s meaning given his lack of “legal training and access
to” the statutes it references. (Maj. opn., ante, at p. 19.) To the
extent, if any, the text of the single paragraph arbitration
agreement is, as the majority asserts, “ ‘visually impenetrable’ ”
(maj. opn., ante, at p. 17), the text of the wage order —
comprising 10 pages of densely packed, single-spaced type with
22 sections, multiple subsections, and multiple subparts to the
multiple subsections — is far more visually impenetrable. And
to the extent, if any, the arbitration agreement’s “substance” is,
as the majority asserts “opaque” (maj. opn., ante, at p. 17), again,
the wage order’s substance is far more opaque. The wage order
contains more “statutory references and legal jargon” than the
arbitration agreement, and its “legal jargon” is much more
complicated than the arbitration agreement’s. (Maj. opn., ante,
at p. 17.) To borrow the words of the majority, “a layperson
trying to navigate” the wage order “text would not have an easy
journey.” (Maj. opn., ante, at p. 18.) Indeed, assuming the wage
order applied to Kho — something the majority does not actually
assert — it would have been hard for him to have understood
this fact even had he read it; in complexly structured, multipart
sections containing highly technical “legal jargon” and many
“statutory references” (maj. opn., ante, at p. 18), the first three
pages of the wage order set forth 21 definitions and numerous
coverage exemptions (Wage Order No. 4-2001, §§ 1, 2).
As for informing Kho about the Berman procedure, the
wage order contains not a single mention of that procedure as a
means for resolving wage disputes, either by name or by
statutory reference. Nor, contrary to the majority’s suggestion,
32
OTO, L.L.C. v. KHO
Chin, J., dissenting
does the sentence on which the majority relies even expressly
refer to “wage-related violations.” (Maj. opn., ante, at p. 22.) It
refers instead only generally to “QUESTIONS ABOUT
ENFORCEMENT of the Industrial Welfare Commission orders
and reports of violations.” (Wage Order No. 4-2001, p. 9.) For
Kho to have known that this sentence related to “wage-related
violations” (maj. opn., ante, at p. 22), he would have needed to
understand that the acts he wanted to challenge were addressed
by the wage order and constituted violations of its complicated,
legally technical provisions. Finally, the sentence in question
appears at the end of the 10-page wage order, after the last of its
22 sections. (Wage Order No. 4-2001, p. 9.) Thus, Kho would
not have even come across it unless he first made his way all the
way through the rest of the long, complex, legally technical wage
order. In other words, this sentence, unlike the arbitration
provision, truly is “ ‘ “hidden within a prolix printed form.” ’ ”
(Pinnacle, supra, 55 Cal.4th at p. 247, italics added.
The other wage order — which, again, did not exist during
Kho’s employment with OTO — is, in addition, similarly
problematic. Though shorter, it comprises five sections of
densely-packed, single-spaced, small font type; written in very
technical legal jargon; containing both statutory references and
references to other wage orders; setting forth exceptions to its
application; and including complicated charts. (Wage Order
No. MW-2019.) It makes no mention of the Berman procedure,
either by name or by statutory reference, and contains no
express reference to “wage-related violations.” (Maj. opn., ante,
at p. 22.) Instead, at the bottom, in tiny type, its states that
“Questions about enforcement should be directed to the Labor
Commissioner’s Office.” (Wage Order No. MW-2019.
33
OTO, L.L.C. v. KHO
Chin, J., dissenting
In short, the wage orders that, according to the majority,
demonstrate the Berman procedure’s superiority in terms of
initiating action, demonstrate just the opposite. To the extent,
if any, the arbitration agreement is problematic in the ways the
majority asserts, the wage orders are more problematic in each
of those ways. And they are problematic in additional ways that
the majority does not even assert characterize the arbitration
agreement.
In addition, the majority’s assertion about only needing to
“fill[] out a simple form” to initiate the Berman procedure (maj.
opn., ante, at p. 21) is inaccurate. Upon examination, the form
to which the majority refers turns out not to be so “simple” at
all. (Maj. opn., ante, at p. 21.) It requires an employee to know
and provide a considerable amount of detailed information,
including: whether the claim is “about a public works project”;
whether there is “a union contract covering [the] employment,”
in which case a copy should be attached; the “total number of
[the employer’s] employees”; and a complete breakdown of the
unpaid amounts into “regular wages,” “overtime wages,” “meal
period wages,” “rest period wages,” “split shift premium,”
“reporting time pay,” “commissions,” “vacation wages,”
“business expenses,” “unlawful deductions,” and “other.”
(DLSE, Initial Report of Claim (DLSE Form 1) (rev. July 2012).
This is far more information than is necessary to file a civil
complaint. Indeed, unlike the majority, the DLSE recognizes
that the claim initiation form is not so simple; with it, the DLSE
offers two pages of densely-packed “Instructions for Filing A
Wage Claim” and, attached to the instructions, a densely-
packed, three-page “Guide to Completing ‘Initial Report or
Claim’ Form (DLSE Form 1).”
34
OTO, L.L.C. v. KHO
Chin, J., dissenting
Moreover, initiating the Berman procedure may actually
require more than filling out that single form. Additional forms
must be filled out and submitted “if the claim involves
“commission pay” or “vacation wages,” or “if the plaintiff’s work
hours or days of work varied per week or were irregular and the
plaintiff is seeking unpaid wages or premium pay for meal or
rest period violations.” (DLSE Policies, supra, at p. 1.
Employees are also directed to submit a variety of other
supporting documents — time records, paychecks and paystubs,
bounced checks, notice of employment information — if they
have them. (Ibid.) Given the above, the majority has
exaggerated the ease of initiating the Berman procedure.
Sixth, the majority’s discussion of how “[c]ollection . . . in
the Berman context” is “simplified” compared to arbitration
(maj. opn., ante, at p. 23) ignores aspects of arbitration that
undermine its view. The majority emphasizes that where “the
employer unsuccessfully appeals the Labor Commissioner’s
award, the claimant can collect on a posted bond.” (Maj. opn.,
ante, at p. 24.) However, an employee who arbitrates a
controversy may obtain provisional remedies — such as an
attachment or a preliminary injunction requiring payment of
wages during the arbitration
— in connection with the
controversy. (Code Civ. Proc., § 1281.8.) No comparable
provision enables an employee actually to obtain any payment
during the Berman procedure.
Seventh, the majority’s discussion of the relative costs of
arbitration and the Berman procedure is misleading and
incomplete. According to the majority, by agreeing to arbitrate
a wage claim, an employee gives up a “largely cost-free
administrative procedure.” (Maj. opn., ante, at p. 25.) But an
employee who requests a subpoena for documents, records or
35
OTO, L.L.C. v. KHO
Chin, J., dissenting
witnesses — as Kho did in this case — is responsible for the
“[c]osts incurred in the service of a subpoena, witness fees and
mileage.” (DLSE Policies, supra, at p. 3.) And employees who
file de novo appeals from awards by the Labor Commissioner
must pay (1) a court filing fee (Lab. Code, § 98.2, subd. (a)) and
(2) the employer’s “costs and reasonable attorney’s fees” if they
fail to recover “an amount greater than zero” (id., subd. (c)). In
any event, as the majority correctly notes, the arbitration
agreement “anticipates” that, consistent with Armendariz, OTO
has the “obligation to pay arbitration-related costs.” (Maj. opn.,
ante, at p. 18.) Thus, if there are any costs “unique to
arbitration” under the agreement — such as costs incident to
discovery, preparation of proper pleadings, and/or motion
practice — then OTO must pay them. (Armendariz, supra, 24
Cal.4th at p. 113.) As the majority explains, this payment
obligation “mitigates the unfairness of expecting that [Kho] bear
costs of a procedure to which [he was] required to agree.” (Maj.
opn., ante, at p. 29, italics added.
So it turns out that the majority’s only real concern about
costs relates to “[a]ttorney fees,” which, says the majority, are
“different” from other costs “because they are not unique to
arbitration.” (Maj. opn., ante, at pp. 26-27.) According to the
majority, “employees can secure free legal assistance from the
Labor Commissioner, both at the Berman hearing and in any
subsequent appeal.” (Maj. opn., ante, at p. 27.) By contrast, in
the arbitration, they must “pay for [legal] representation.”
(Ibid.
The majority’s analysis is problematic for several reasons.
First, to be clear, according to the majority, the commissioner
may not provide an employee with “representation” by “a
lawyer” at a Berman hearing (maj. opn., ante, at p. 27), because
36
OTO, L.L.C. v. KHO
Chin, J., dissenting
“no statute authorizes” such representation (maj. opn., ante, at
p. 27, fn. 13). Instead, in terms of providing “free legal
assistance” (maj. opn., ante, at p. 27) at the Berman hearing, the
commissioner only may “assist . . . with cross-examination and
explain issues and terms involved” (maj. opn., ante, at p. 8).
Second, as noted above, nothing in the arbitration agreement
precludes the arbitrator from providing similar assistance, and
the majority never asserts otherwise. Third, even as to de novo
appeals, not all employees are eligible for legal representation
by the commissioner, and even fewer are absolutely entitled to
such representation. Employees who are “financially []able to
afford counsel” are not eligible for representation by the
commissioner. (Lab. Code, § 98.4.) If they are “financially
unable to afford counsel,” but are “objecting to any part of the
Labor Commissioner’s final order,” they are eligible for
representation, but the commissioner has discretion not to
provide it. (Ibid.) Thus, employees requesting a trial de novo
are never guaranteed representation by the commissioner,
because they are, by definition, objecting to part of the final
order; representation of such employees is always a matter for
the commissioner’s discretion. Only those employees who are
both “financially unable to afford counsel” and “not objecting to
any part of the Labor Commissioner’s final order” are statutorily
guaranteed representation by the commissioner. (Ibid.
Fourth, the majority gives short shrift to OTO’s claim that
“the Labor Commissioner could represent claimants in
arbitration.” (Maj. opn., ante, at p. 27, fn. 13.) The majority
states that “no statute authorizes the representation of [wage]
claimants outside th[e] specific context” of de novo proceedings
following a Berman hearing. (Maj. opn., ante, at p. 27, fn. 13.
However, Labor Code section 98.3, subdivision (a), states that
37
OTO, L.L.C. v. KHO
Chin, J., dissenting
“[t]he Labor Commissioner may prosecute all actions for the
collection of wages, penalties, and demands of persons who in
the judgment of the Labor Commissioner are financially unable
to employ counsel and the Labor Commissioner believes have
claims which are valid and enforceable.” The majority asserts
that this statute only gives the commissioner “the power to
prosecute its own action . . . on behalf of workers” (maj. opn.,
ante, at p. 27, fn. 13), but the statutory language on its face does
not seem so confined, and the majority offers no analysis for its
restrictive reading. Moreover, Labor Code section 98.3,
subdivision (b), states that “[t]he Labor Commissioner may
prosecute action for the collection of wages and other moneys
payable to employees or to the state arising out of an
employment relationship or order of the Industrial Welfare
Commission.” These provisions, and OTO’s argument, merit
more in depth and definitive consideration if, as the majority
reasons, the asserted unavailability of free counsel in
arbitration is the primary reason the arbitration agreement is
substantively unconscionable.
Finally, the majority’s comparison of the employee’s
ability to recover attorney fees in arbitration and in a Berman
procedure is misleading. As noted above, the parties agree —
and the majority does not dispute — that were Kho to hire
counsel to assist in an arbitration and were he to prevail, as “to
most of [his] claims,” he would be entitled to “reasonable
attorney fees and costs” under Labor Code section 218.5. (Maj.
opn., ante, at p. 27.) Nevertheless, the majority continues, he
“face[s] a risk that [he] will not be designated the prevailing
party” under the fee statute. (Maj. opn., ante, at p. 28.) By
contrast, the majority asserts, “The Berman statutes provide
fee-shifting to wage claimants who secure any monetary
38
OTO, L.L.C. v. KHO
Chin, J., dissenting
recovery in an employer’s appeal.” (Maj. opn., ante, at p. 28.) Of
course, this means that claimants who recover nothing in an
employer’s appeal are not entitled to recover attorney fees. And
the majority’s use of the limiting phrase “in an employer’s
appeal” (ibid.) means that in an appeal by the employee, the
employee may not recover attorney fees under any
circumstances, even upon securing full monetary recovery.
(Sonic I, supra, 51 Cal.4th at p. 673 [in de novo proceeding,
“successful appellants may not obtain [attorney] fees”].
Moreover, appealing employees, even if “financially unable to
afford counsel,” are not guaranteed representation by the Labor
Commissioner, because they would be “objecting to [some] part
of the Labor Commissioner’s final order.” (Lab. Code, § 98.4.
In this respect, arbitration, by making attorney fees potentially
available to employees even if they are appealing parties, is
actually more accessible and affordable for employees.
The majority offers little response to my detailed analysis,
other than to say I am simply “rais[ing] the same criticisms of
the Berman procedure that [the majority] considered at length,
and rejected” in Sonic II. (Maj. opn., ante, at p. 25, fn. 15.
Although some of the points I make here about the Berman
procedure are the same as points I made in Sonic II, many are
not
. The majority simply ignores the points that are new. It
also ignores the evidence I cite to refute its assessment of the
Berman procedure, which is based solely on this court’s
assertions about what that procedure was, in theory “ ‘designed
to provide.’ ” (Maj. opn., ante, at p. 7.
Moreover, contrary to the majority’s assertion, I am not
making “criticisms” of the Berman procedure. (Maj. opn., ante,
at p. 25, fn. 15.) I am simply pointing out relevant aspects of the
Berman procedure that are inherent in the statutory provisions
39
OTO, L.L.C. v. KHO
Chin, J., dissenting
themselves or that have revealed themselves through actual
administration of those provisions. This level of detailed inquiry
is necessary because of the basis for the majority’s
unconscionability finding: its assessment of the Berman
procedure’s benefits relative to those of the arbitration
procedure. A proper evaluation of that finding requires close
examination of the majority’s assumptions and of any real,
substantive differences between the two procedures. The court
should not cavalierly invalidate this arbitration agreement
based on erroneous assumptions or assertions about its
procedures as compared to the Berman procedure. In light of
the above considerations, it is impossible to reach a reliable,
accurate, or definitive conclusion that the Berman procedure is
less costly than the arbitration procedure. Given the
uncertainties regarding such a comparison, the majority’s
analysis provides an insufficient basis for concluding that Kho
has carried his burden to prove that the agreement was
“unconscionable at the time it was made.” (Civ. Code, § 1670.5,
subd. (a).
Of course, reasonable people may reach different
conclusions about the inchoate value, at the time the arbitration
agreement was signed, of a Berman procedure’s potential
benefits in comparison to the inchoate value of the arbitration
procedure’s potential benefits. But a court’s after-the-fact,
subjective assessment of the relative benefits of the two
procedures should not be the basis for exercising the judicial
power to declare that an agreement was “unconscionable at the
time it was made” (Civ. Code, § 1670.5, subd. (a)), and thus
unenforceable. This should be especially true where, as here,
the basis for the court’s conclusion is that the arbitration
procedure is simply too much like a procedure — ordinary civil
40
OTO, L.L.C. v. KHO
Chin, J., dissenting
litigation — that, according to the majority, has been “carefully
crafted to ensure fairness to both sides.” (Maj. opn., ante, at p.
25.
Which brings me to my next point of disagreement with
the majority: its view that our case law allows invalidation of
this arbitration agreement based on the relative benefits of the
arbitration procedure and the Berman procedure. To be sure,
the majority in Sonic II, supra, 57 Cal.4th at page 1149, said
that a court, “in determining whether an arbitration agreement
is unconscionable,” may “consider the value of benefits provided
by the Berman statutes” that the employee has “surrender[ed].”
However, the Sonic II majority also emphasized: that an
“employee’s surrender of such benefits does not necessarily
make the agreement unconscionable” (id. at p. 1125); that a
finding of substantive unconscionability may not be “premised
on the superiority of the Berman hearing as a dispute resolution
forum” (id. at p. 1149); that “the unconscionability doctrine does
not mandate the adoption of any particular form of dispute
resolution mechanism, and courts may not decline to enforce an
arbitration agreement simply on the ground that it appears to
be a bad bargain or that one party could have done better” (id.
at p. 1148); that “[t]he unconscionability inquiry is not a license
for courts to impose their renditions of an ideal arbitral scheme”
(ibid.); that the party seeking to compel arbitration need not
“justify the [arbitration] agreement through provision of
benefits comparable to those otherwise afforded by statute” (id.
at p. 1152); that “parties may opt out of the Berman process with
any agreement that provides for accessible, affordable
arbitration of wage disputes” (id. at p. 1168); that “[o]ur rule
requires only that wage claimants have an accessible and
affordable mechanism for dispute resolution, not that the
41
OTO, L.L.C. v. KHO
Chin, J., dissenting
mechanism adopt any particular procedure or assume any
particular form” (id. at pp. 1170-1171); and that “an adhesive
arbitration agreement that compels the surrender of Berman
protections as a condition of employment” (id. at p. 1150) is
enforceable “so long as” it “provides employees with an
accessible, affordable process for resolving wage disputes that
does not ‘effectively block[] every forum for the redress of [wage]
disputes, including arbitration itself’ ” (id. at pp. 1157, 1158).
As noted earlier, the majority acknowledges that the
features of the arbitration procedure here were “carefully
crafted to ensure fairness to both sides” (maj. opn., ante, at p.
25) and are not “per se unfair” (maj. opn., ante, at p. 25), and the
majority does not find that arbitration is so unaffordable or
inaccessible for Kho as to effectively block every forum for
redress. If the statements of the Sonic II majority have any
meaning, then that should end the inquiry, and the arbitration
agreement should be enforced. But the majority nevertheless
invalidates the agreement because, in its view, the arbitration
procedure is not as advantageous for Kho as the Berman
procedure. In this regard, the majority’s analysis and
conclusion are inconsistent with the Sonic II majority’s many
statements and assurances regarding the enforceability of
arbitration agreements in this context, especially its statement
that a finding of substantive unconscionability may not be
“premised on the [purported] superiority of the Berman hearing
as a dispute resolution forum.” (Sonic II, supra, 57 Cal.4th at p.
1149.
The majority here essentially ignores the Sonic II
majority’s statements, proclaiming that “the question” here
“[u]ltimately” is whether Kho “was coerced or misled into
making an unfair bargain” that is too “one-sided” to be enforced.
42
OTO, L.L.C. v. KHO
Chin, J., dissenting
(Maj. opn., ante, at p. 32.) To be sure, the Sonic II majority
stated that “courts may examine the terms of adhesive
arbitration agreements to determine whether they are
unreasonably one-sided.” (Sonic II, supra, 57 Cal.4th at p.
1145.) But the Sonic II majority also stated that, with respect
to claims that qualify for the Berman procedure, “arbitration
conducted with many of the formalities of litigation is not
unconscionably one-sided” if it provides “accessible and
affordable resolution of wage disputes.” (Id. at p. 1163.) And
the Sonic II majority expressly “reaffirm[ed]” Little’s discussion
on this point (ibid.), where we said “[i]t is not at all obvious” that
provisions incorporating “legal formalities into” an arbitration
agreement — i.e., “the rules of pleading and evidence” and
“traditional judicial motions such as demurrer and summary
judgment” — “would inordinately benefit [the employer] rather
than [the employee]” (Little, supra, 29 Cal.4th at p. 1075, fn. 1).
The majority’s analysis and conclusion are inconsistent with
these statements.
Finally, even were the majority correct that the agreement
is one-sided with respect to claims covered by the Berman
procedure — and as I have demonstrated, it is not — the
majority’s analysis is contrary to the Sonic II majority opinion’s
discussion of one-sidedness. Consistent with my earlier
discussion of basic contract law, the Sonic II majority stated that
whether a contract is “unreasonably one-sided” must be
determined based on “the overall bargain.” (Sonic II, supra, 57
Cal.4th at p. 1146.) Thus, even were it true that the arbitration
procedure provides Kho with little or no benefit with respect to
claims covered by the Berman procedure, that would not mean
the parties’ “ ‘overall bargain’ ” was “ ‘one-sided,’ ” let alone
“ ‘unreasonably one-sided.’ ” (Maj. opn., ante, at p. 11). Only by
43
OTO, L.L.C. v. KHO
Chin, J., dissenting
evaluating the arbitration agreement as if it were merely “a
waiver of Berman procedures” (maj. opn., ante, at p. 11) and
ignoring the overall benefits Kho received and the detriment
OTO suffered — all in disregard of our precedents — can the
majority assert that, given what Kho “received in return” for
“surrender[ing] the full panoply of Berman procedures and
assistance” (maj. opn., ante, at p. 32), the agreement is “so
unfairly one-that it should not be enforced” (maj. opn., ante, at
p. 11).
For all of the preceding reasons, the majority’s analysis
and conclusion are incorrect as a matter of state law.
E. Federal Law — The FAA
The final reason I do not join the majority opinion is that
its analysis is inconsistent with — and thus preempted by — the
FAA, as the high court has construed that law.
The high court cases applying the FAA authoritatively
establish at least two principles that are fatal to the majority’s
analysis and conclusion. First, an arbitration agreement’s
enforceability may not “turn[] on” a state’s “judgment
concerning the forum for enforcement of [a] state-law cause of
action.” (Buckeye Check Cashing, Inc. v. Cardegna (2006) 546
U.S. 440, 446 (Buckeye).) Thus, as the Sonic II majority stated,
the FAA precludes a court from “finding an arbitration
agreement unconscionable” based on “the fact that arbitration
supplants an administrative hearing.” (Sonic II, supra, 57
Cal.4th at p. 1146.) Second, judges may not declare an
arbitration agreement to be unenforceable based on their
subjective view that the arbitration procedure would not provide
“ ‘effective vindication’ ” of a statutory right, unless the
agreement goes so far as to “forbid[] the assertion of certain
44
OTO, L.L.C. v. KHO
Chin, J., dissenting
statutory rights,” and “perhaps” if it imposes “filing and
administrative fees . . . that are so high as to make access to the
forum impracticable.” (American Express Co. v. Italian Colors
Restaurant
(2013) 570 U.S. __, __ [133 S.Ct. 2304, 2310-2311]
(Italian Colors).
The majority’s analysis and conclusion violate both of
these binding FAA principles. Again, the majority, though
recognizing that the arbitration procedure here was “carefully
crafted to ensure fairness to both sides” (maj. opn., ante, at p.
25) and is not “per se unfair,” unaffordable, or inaccessible
(ibid.), nevertheless invalidates the arbitration agreement
based on its view that the procedure is not as advantageous for
Kho and other employees as the Berman procedure. In other
words, contrary to high court precedent, the majority makes the
agreement’s enforceability “turn[] [entirely] on” a state court’s
“judgment” that the Berman procedure provides a better “forum
for enforcement of [a] state-law cause of action” (Buckeye, supra,
546 U.S. at p. 446), and that the arbitration procedure
“supplants” that more advantageous “administrative” forum
(Sonic II, supra, 57 Cal.4th at p. 1146). Also contrary to high
court precedent, the majority expressly has rested its conclusion
on the view that the arbitration procedure, as compared to the
Berman procedure, “erect[s] . . . barriers to the vindication of
[employees’] statutory rights.” (Maj. opn., ante, at p. 27.) Under
binding high court case law, the FAA does not permit
invalidation of the arbitration agreement on these grounds.
It is true that under the FAA, enforcement of an
arbitration agreement is subject to “such grounds as exist at law
or in equity for the revocation of any contract.” (9 U.S.C. § 2.
It is also true that under this clause — which is known as the
saving clause — unconscionability, as a “ ‘generally applicable
45
OTO, L.L.C. v. KHO
Chin, J., dissenting
contract defense[],’ ” may be the basis for declining to enforce an
arbitration agreement. (Concepcion, supra, 563 U.S. at p. 339.
However, the FAA imposes substantial limits on what a
court may do in the name of unconscionability. To begin with,
“[a] court may not . . . construe [an arbitration] agreement in a
manner different from that in which it otherwise construes
nonarbitration agreements under state law.” (Perry v. Thomas
(1987) 482 U.S. 483, 493, fn. 9 (Perry).) Nor may a court apply
the unconscionability doctrine “in a fashion that disfavors
arbitration” or “ ‘rely on the uniqueness of an agreement to
arbitrate as a basis for a state-law holding that enforcement
would be unconscionable.’ ” (Concepcion, supra, 563 U.S. at p.
341.) In short, the saving clause “establishes an equal-
treatment principle: A court may invalidate an arbitration
agreement based on ‘generally applicable contract defenses’ like
fraud or unconscionability, but not on legal rules that ‘apply only
to arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.’ ” (Kindred Nursing Centers
Ltd. Partnerships v. Clark
(2017) __ U.S. __, __ [137 S.Ct. 1421,
1426] (Kindred Nursing).) As this court has explained, this
equal treatment principle mandates that our unconscionability
standard “be . . . the same for arbitration and nonarbitration
agreements” (Sanchez, supra, 61 Cal.4th at p. 912) and that we
enforce our unconscionability rules “evenhandedly” (Sonic II,
supra, 57 Cal.4th at p. 1143). It preempts any rule of
unconscionability that “discriminat[es] on its face against
arbitration.” (Kindred Nursing, at p. 1426.
But the equal treatment principle extends beyond overt
discrimination,
“displac[ing]
any
[state]
rule
[of
unconscionability] that covertly accomplishes the same
objective” (Kindred Nursing, supra, __ U.S. at p. __ [137 S.Ct. at
46
OTO, L.L.C. v. KHO
Chin, J., dissenting
p. 1426]) or that employs “more subtle methods” to “target
arbitration” (Epic Systems Corp. v. Lewis (2018) __ U.S. __, __
[138 S.Ct. 1612, 1622] (Epic)). Thus, as this court has explained,
the FAA “preempts even a ‘generally applicable’ state law
contract defense if that defense (1) is ‘applied in a fashion that
disfavors arbitration’ [citation], or (2) ‘interferes with
fundamental attributes of arbitration’ [citation], such as ‘ “lower
costs, greater efficiency and speed, and the ability to choose
expert adjudicators to resolve specialized disputes.” ’ ” (McGill
v. Citibank
, N.A. (2017) 2 Cal.5th 945, 964 (McGill).) In other
words, although the FAA’s “saving clause preserves generally
applicable contract defenses,” it does not “preserve state-law
rules that stand as an obstacle to the accomplishment of the
FAA’s objectives.” (Concepcion, supra, 563 U.S. at p. 343). Nor
does it permit state courts, in “addressing the concerns that
attend contracts of adhesion,” “to take steps” under the rubric of
unconscionability that “conflict with the FAA or frustrate its
purpose to ensure that private arbitration agreements are
enforced according to their terms.” (Id. at p. 347, fn. 6.) Thus,
“[t]he ‘grounds’ ” for invalidating an arbitration agreement that
the saving clause preserves do not “ ‘include a State’s mere
preference for procedures that are incompatible with arbitration
and that “would wholly eviscerate arbitration agreements.” ’ ”
(Id. at p. 343.
By refusing to enforce the arbitration agreement based on
its view that the arbitration procedure is less advantageous for
Kho and other employees than the Berman procedure, the
majority runs afoul of these governing principles. Given the
majority’s recognition that the arbitration procedures have been
“carefully crafted to ensure fairness to both sides” (maj. opn.,
ante, at p. 25), and are not “per se unfair,” unaffordable, or
47
OTO, L.L.C. v. KHO
Chin, J., dissenting
inaccessible (maj. opn., ante, at p. 25), the majority’s
“comparative benefit” basis for invalidating the agreement
constitutes nothing more than a “ ‘mere preference’ ” for the
“ ‘procedures’ ” prescribed by the Berman statutes. (Concepcion,
supra, 563 U.S. at p. 343.) By insisting that the arbitration
agreement have more features comparable to those of the
Berman procedure, the majority is “frustrat[ing]” the FAA’s
“purpose to ensure that private arbitration agreements are
enforced according to their terms.” (Id. at p. 347, fn. 6.) The
majority’s effort to disguise this obvious preference for the
Berman procedure under the cloak of unconscionability does not
render its analysis and conclusion valid under the FAA; as
explained above, the FAA’s equal treatment principle extends
beyond overt discrimination, “displac[ing] any [state] rule [of
unconscionability] that covertly accomplishes the same
objective” (Kindred Nursing, supra, __ U.S. at p. __ [137 S.Ct. at
p. 1426]) or employs “more subtle methods” to “target
arbitration” (Epic, supra, __ U.S. at p. __ [138 S.Ct. at p. 1622]).
But the majority’s effort is perhaps not as subtle or covert
as it might at first appear. The high court, in discussing the
“ ‘great variety’ of ‘devices and formulas’ ” that judges hostile to
arbitration have used to invalidate arbitration agreements, has
expressly “not[ed] that California’s courts have been more likely
to hold contracts to arbitrate unconscionable than other
contracts.” (Concepcion, supra, 563 U.S. at p. 342.) Any reader
of this court’s opinions would surely be able to confirm the high
court’s observation. Any such reader would also be able to
discern that the unconscionability analysis and contract
principles this court applies in arbitration cases — including the
majority’s “comparative benefit” rationale for invalidating the
arbitration agreement here, its insistence that there be separate
48
OTO, L.L.C. v. KHO
Chin, J., dissenting
consideration for Kho’s agreement to arbitrate claims covered by
the Berman procedure, its failure to consider the parties’ overall
bargain and the detriment OTO suffered in determining what
Kho received in return for his agreement to arbitrate, and its
reliance on factors to find procedural unconscionability that our
precedents hold are not factors — are indeed very different from
the analysis and principles the court applies in nonarbitration
cases.
Indeed, a majority of this court long ago expressly
announced that with respect to arbitration agreements, it would
apply “the ordinary principles of unconscionability . . . in forms
peculiar to the arbitration context.” (Armendariz, supra, 24
Cal.4th at p. 119.) Here, the majority again explicitly
acknowledges that the “approach” it uses in “evaluating” the
unconscionability of “compelled arbitration of wage
claims” otherwise subject to the Berman procedure is “different”
from the approach this court uses in evaluating other
unconscionability claims. (Maj. opn., ante, at p. 25.) This
unique, Berman-specific approach — and the majority’s
analysis and conclusion in this case — violate, and are thus
preempted by, the FAA and its equal treatment principle, which
preclude a court from “constru[ing an arbitration] agreement in
a manner different from that in which it otherwise construes
nonarbitration agreements under state law” (Perry, supra, 482
U.S. at p. 493, fn. 9), from applying the unconscionability
doctrine “in a fashion that disfavors arbitration,” and from
“ ‘rely[ing] on the uniqueness of an agreement to arbitrate as a
basis for a state-law holding that enforcement would be
unconscionable’ ” (Concepcion, supra, 562 U.S. at p. 341). As
this court has held, the FAA’s equal treatment principle
mandates that our unconscionability standard “be . . . the same
49
OTO, L.L.C. v. KHO
Chin, J., dissenting
for arbitration and nonarbitration agreements” (Sanchez, supra,
61 Cal.4th at p. 912) and that we enforce our unconscionability
rules “evenhandedly” (Sonic II, supra, 57 Cal.4th at p. 1143). In
this case, the majority, once again, fails to heed this court’s own
pronouncements.
Moreover, this case confirms my view, as set forth in Sonic
II, that the unique unconscionability analysis a majority of this
court applies to compulsory arbitration of Berman claims is
incompatible with, and therefore preempted by, the FAA for
another reason: it “ ‘ “stand[s] as an obstacle to the
accomplishment and execution of [Congress’s] full purposes and
objectives
” ’ in passing the FAA.” (Sonic II, supra, 57 Cal.4th at
p. 1187 (conc. & dis. opn. of Chin, J.).) In Italian Colors, supra,
570 U.S. __ at pages __, __ [133 S.Ct. 2304, 2311-2312], the high
court rejected an approach that would “ ‘require courts to
proceed case by case to tally the costs and burdens to particular
plaintiffs in light of their means’ ” and “ ‘the size of their
claims.’ ” “Such a preliminary litigating hurdle,” the court
explained, “would undoubtedly destroy the prospect of speedy
resolution that arbitration in general and bilateral arbitration
in particular was meant to secure. The FAA does not sanction
such a judicially created superstructure.” (Id. at p. __ [133 S.Ct.
at p. 2312].) As I explained in Sonic II, the unconscionability
inquiry the Sonic II majority set forth — by requiring a
“minitrial” in superior court “on the comparative costs and
benefits of arbitration and the Berman procedure for a
particular employee” and possible “appellate review of the trial
court’s decision” — creates “the very type of ‘superstructure’ ”
that, according to the high court, “the FAA prohibits.” (Sonic II,
at p. 1188 (conc. & dis. opn. of Chin, J.).
50
OTO, L.L.C. v. KHO
Chin, J., dissenting
In rejecting my view, the Sonic II majority confidently
responded that its approach would “not erect a ‘preliminary
litigating hurdle’ of the sort prohibited by Italian Colors.” (Sonic
II
, supra, 57 Cal.4th at p. 1167.) To support its view, the
majority asserted that a wage claim “is simpler than the
antitrust claim at issue in Italian Colors,” that courts “have
routinely decided whether arbitration is affordable in a given
case,” and that applicable statutes would facilitate “summary”
disposition of unconscionability claims. (Id. at p. 1157.
The facts and the majority’s conclusion in this case
validate my analysis. OTO moved to compel arbitration in
August 2015. The trial court denied the motion four months
later, in December 2015. OTO then appealed, and in August
2017 — two years after OTO moved to compel arbitration — the
Court of Appeal disagreed with the trial court and ordered the
motion granted. Now, after another two years of litigation, a
majority of this court is reversing the Court of Appeal based on
a different assessment of the arbitration procedure’s benefits
relative to a Berman procedure. Thus, as the majority
acknowledges, the “[l]itigation” in this case just to apply Sonic
II
’s unique unconscionability test hasconsumed . . . four years.”
(Maj. opn., ante, at p. 24, fn. 12, italics added.) Even still, says
the majority, its decision does not settle the question of whether
an identical arbitration agreement would be enforceable “under
less coercive circumstances.” (Maj. opn., ante, at p. 32.) The
length of this litigation and the majority’s case-specific
limitation on its holding confirm my view that the
unconscionability analysis this court has prescribed for
agreements to arbitrate claims the Berman procedure covers
creates a preliminary litigating hurdle that, according to Italian
Colors
, is incompatible with, and thus preempted by, the FAA.
51
OTO, L.L.C. v. KHO
Chin, J., dissenting
The majority’s response — that this inordinate delay in
arbitration is permissible under the FAA because
unconscionability is a generally applicable contract defense that
“has long been recognized as a permissible ground for
invalidating arbitration agreements under the FAA’s savings
clause” (maj. opn., ante, at p. 34) — is simply incorrect. Under
high court precedent, the unconscionability defense does not
“qualify for protection under the saving clause” if it is applied so
as to “interfere[] with a fundamental attribute of arbitration.”
(Epic, supra, __ U.S. at p. __ [138 S.Ct. at p. 1622].) Consistent
with this precedent, we unanimously stated just two years ago
that the FAA “preempts even a ‘generally applicable’ state law
contract defense
if that defense . . . ‘interferes with fundamental
attributes of arbitration,’ ” including “ ‘ “lower costs [and]
greater efficiency and speed.” ’ ” (McGill, supra, 2 Cal.5th at p.
964, italics added.) Because the extended litigation made
necessary by a majority of this court’s unique approach to
unconscionability in the Berman waiver context substantially
interferes with these fundamental attributes of arbitration, the
FAA preempts that approach notwithstanding the fact that
unconscionability is otherwise a generally applicable contract
defense.6
6
The majority’s other response — that this case is atypical
because “[f]ew cases progress to appeal, and vanishingly few
reach this court” (maj. opn., ante, at p. 34) — ignores (1) the cost
and delay attributable to the superior court proceedings, and (2
the fact that between 10,000 and 15,000 appeals are filed in our
Courts of Appeal each year. (Jud. Council of Cal., 2017 Court
Statistics Report, Statewide Caseload Trends: 2006-2007
Through 2015-2016, p. 48.
52
OTO, L.L.C. v. KHO
Chin, J., dissenting
The majority opinion here also confirms another aspect of
my FAA preemption analysis in Sonic II. There, I explained
that the Sonic II majority’s unconscionability analysis is
“inconsistent with” the FAA, as the high court construed it in
Southland, because it “is not a ground that exists at law or in
equity for the revocation of any contract, but is . . . merely a
ground that exists for the revocation of arbitration provisions in
contracts subject to the Berman statutes or to other statutes
that ‘legislatively’ afford to ‘a particular class . . . specific
protections in order to mitigate the risks and costs of pursuing
certain types of claims.’ ” (Sonic II, supra, 57 Cal.4th at p. 1190
(conc. & dis. opn. of Chin, J.).) Consistent with my analysis, the
majority, in finding unconscionability here, concedes that it is
using “a different approach in evaluating the compelled
arbitration of wage claims, as compared to the arbitration of
other types of disputes.” (Maj. opn., ante, at p. 25.) That
approach, the majority continues, is not appropriate for
“wrongful demotion and discharge” claims because “[t]here is no
Berman-like administrative process for” such claims (maj. opn.,
ante, at p. 25) and no provision for “free legal assistance” (id. at
p. 27) as there is with the Berman procedure; “[w]hile all
employees would likely benefit from having a lawyer in the
litigation-like arbitration process here,” “wage claimants
present a somewhat special case” because “only [they] have to
pay for representation that was otherwise available to them for
free” (ibid.). Thus, although arbitration with “litigation-like
procedures” is permissible for some employment claims, it is
unacceptable as a “substitute for [the Berman] administrative
procedure.” (Maj. opn., ante, at p. 16.) These statements
reinforce the view I stated in Sonic II: This court’s rule of
unconscionability for agreements requiring arbitration of
53
OTO, L.L.C. v. KHO
Chin, J., dissenting
unpaid wage claims otherwise eligible for the Berman procedure
is “inconsistent with” the FAA because it “is not a ground that
exists at law or in equity for the revocation of any contract, but
is . . . merely a ground that exists for the revocation of
arbitration provisions in contracts subject to the Berman
statutes.’ ” (Sonic II, supra, at p. 1190 (conc. & dis. opn. of Chin,
J.).
Under the FAA, “[p]arties may generally shape
[arbitration] agreements to their liking by specifying with whom
they will arbitrate, the issues subject to arbitration, the rules by
which they will arbitrate, and the arbitrators who will resolve
their disputes. [Citation.] Whatever they settle on, the task for
courts and arbitrators at bottom remains the same: ‘to give
effect to the intent of the parties.’ ” (Lamps Plus, Inc. v. Varela,
supra, __ U.S. at p. __ [139 S.Ct. at p. 1416].
California law embodies a similar principle; as this court
has explained, by enacting the California Arbitration Act, “the
Legislature has determined that the parties shall have
considerable leeway in structuring the dispute settlement
arrangements by which they are bound . . . .” (Graham, supra,
28 Cal.3d at p. 825.) This “leeway . . . permit[s] the
establishment of arrangements which vary to some extent from
the dead-center of ‘neutrality,’ ” so long as they meet “certain
‘minimum levels of integrity.’ ” (Ibid.) In light of the public
policy strongly favoring arbitration, those arrangements should
be enforced — and “the matter should be permitted to proceed
to arbitration” — absent a “clear[]” showing that they
“essentially preclude the possibility of a fair hearing.” (Id. at p.
826, fn. 23.) “If, in the course of arbitration proceedings, the
resisting party is actually denied a fair opportunity to present
54
OTO, L.L.C. v. KHO
Chin, J., dissenting
his position, ample means for relief are available through a
subsequent petition to vacate the award.” (Ibid.
The majority violates these federal and state law
principles by invalidating the arbitration rules to which the
parties in this case agreed — even though those rules have been
“carefully crafted to ensure fairness to both sides” (maj. opn.,
ante, at p. 25) and do not make arbitration “per se unfair,”
unaffordable, or inaccessible (ibid.) — because they are not, in
the majority’s view, as advantageous for Kho as the Berman
procedure. This conclusion is both inconsistent with California
law and preempted by the FAA.
For the foregoing reasons, I dissent.
CHIN, J.
55

See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion OTO, L.L.C. v. Kho

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted
XXX 14 Cal.App.5th 691
Rehearing Granted
Opinion No.
S244630
Date Filed: August 29, 2019

Court:
Superior
County: Alameda
Judge: Evelio M. Grillo

Counsel:
Fine, Boggs & Perkins, John P. Boggs and Roman Zhuk for Plaintiff and Appellant.
Fisher & Phillips, Wendy McGuire Coats and Katherine P. Sandberg for California New Car Dealers
Association as Amicus Curiae on behalf of Plaintiff and Appellant.
Fernando Flores, Miles E. Locker and Theresa Bichsel for Intervener and Appellant.
Weinberg, Roger & Rosenfeld, David A. Rosenfeld, Caren P. Sencer and Caroline N. Cohen for Defendant
and Respondent.




Counsel who argued in Supreme Court (not intended for publication with opinion):
John P. Boggs
Fine, Boggs & Perkins
80 Stone Pine Road, Suite 210
Half Moon Bay, CA 94019
(650) 712-8909

Miles E. Locker
Division of Labor Standards Enforcement
Department of Industrial Relations
455 Golden Gate Avenue, 9th Floor
San Francisco, CA 94102
(415) 703-4863
David A. Rosenfeld
Weinberg, Roger & Rosenfeld
1001 Marina Village Parkway, Suite 200
Alameda, CA 94501
(510) 337-1001
Opinion Information
Date:Docket Number:
Thu, 08/29/2019S244630