OTO v. Kho is D.O.A. in U.S. Supreme Court

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Last year, we discussed the California Supreme Court’s ruling in the case of One Toyota of Oakland v. Kho (“OTO”), which seemingly went against federal law favoring arbitration and the use of mandatory arbitration agreements in employment. In OTO, a dealership service technician brought a claim for unpaid wages in front of the Labor Commissioner. The dealership attempted to move the case to arbitration under the technician’s arbitration agreement, but the trial court found that the arbitration agreement was unenforceable as procedurally unconscionable.

In May, we reported that OTO asked the United States Supreme Court (“SCOTUS”) to review the California Supreme Court’s decision to determine if it was rightly decided. The hope was that SCOTUS would review the California high court’s decision and determine that it was inconsistent with the Federal Arbitration Act.

On June 8, 2020, SCOTUS declined to take OTO v. Kho up on review, meaning that the California Supreme Court’s decision will stand. Though this was not the result employers wanted, it is not a death knell to all arbitration agreements. OTO was based on narrow facts where the employer had tried to compel arbitration of a Labor Commissioner claim. The California Supreme Court thought it would be an unfair exchange for the plaintiff to give up the right to a Berman hearing – an administrative procedure – for an arbitration, which is more time consuming and expensive. In making this decision, the court noted that arbitration “closely resembled civil litigation,” whereas the Berman hearing did not. Thus, it could be argued that arbitration is still an acceptable substitute for civil litigation and a jury trial.

It is always a good idea for employers to maintain up-to-date employment arbitration agreements. Employers should consult with their attorneys to see if their current arbitration agreement properly carves our administrative procedures and complies with other findings of the court in OTO and other cases.