The California Supreme Court recently issued an important case involving FAA preemption. In Sonic-Calabasas A, Inc. v. Moreno, No. S174475 (Oct. 17, 2013) (click here for a copy of the opinion), the California Supreme Court found that the FAA, as interpreted by the U.S. Supreme Court in Concepcion, preempts a California rule prohibiting the waiver of an administrative hearing established by the California legislature to assist employees in recovering wages. The California Supreme Court reasoned that a categorical rule requiring the parties to participate in such an administrative hearing would significantly delay the commencement of arbitration and be contrary to the FAA.
Although the California Supreme Court found that a state may not categorically require an administrative hearing prior to an arbitration, the court also found that a waiver of such a hearing in the context of an arbitration agreement that failed to provide for an effective forum for resolving employment disputes could nevertheless be unconscionable and unenforceable. Therefore, the California Supreme Court remanded the case to the trial court for a fact-specific determination whether the arbitration agreement at issue fails an unconscionability analysis.
As persuasively argued in a recent article by Professor Maureen Weston, the FAA, as interpreted by the Supreme Court, is improperly encroaching on administrative regulatory schemes (click here for a copy of the article), and the Sonic-Calabasas case perfectly illustrates this point. The original drafters never intended the FAA to have this effect. As I argue in my recent book, Outsourcing Justice, the drafters had a more limited vision for the FAA as a statute to facilitate the resolution of basic contract disputes between merchants, and the drafters never intended for the FAA to cover employment disputes.