OTO, L.L.C. v. Kho
An employment arbitration agreement imposed in an oppressive, surprising manner and offering only a complex, litigation-like process in place of the accessible Berman wage-claim forum is unconscionable and unenforceable under the sliding-scale analysis.
OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111
Arbitration
Unconscionability
Berman Hearing
Wages
Affirmed
In brief. Applying the sliding-scale unconscionability framework after Sonic II, the Court held an employee’s arbitration agreement unenforceable. A waiver of the Labor Commissioner’s Berman procedures is permissible only if the arbitration agreement “provide[s] in exchange an accessible and affordable forum for resolving wage disputes.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 130.) Here the agreement was imposed “in a procedurally unconscionable [oppressive and surprising] fashion” and substituted a complex, litigation-like process an ordinary employee could not realistically navigate — rendering it unconscionable. (Id. at pp. 126–141.)
Facts
Ken Kho worked as a service technician for OTO, L.L.C., which operated One Toyota of Oakland. (8 Cal.5th at pp. 118–120.) Several years into his employment, OTO presented Kho with an arbitration agreement as a condition of continued employment. (Ibid.) A “low-level employee” — a porter with no authority to explain or negotiate the terms — delivered the document to Kho at his workstation during his shift, waited while he signed, and took it back. (Id. at pp. 126–128.) The agreement was “a paragon of prolixity,” printed in “an extremely small font” as a single dense block, written in complex legal language, and presented with no explanation and no opportunity to review or consult counsel. (Ibid.) It required arbitration of wage disputes under a procedure resembling civil litigation. (Id. at pp. 134–139.) Kho later filed a wage claim with the Labor Commissioner (a “Berman” claim); OTO petitioned to compel arbitration. (Id. at pp. 120–121.)
Procedural history
The trial court denied OTO’s petition to compel; the Court of Appeal reversed; and the Supreme Court granted review. (8 Cal.5th at pp. 121–122.) Applying unconscionability principles, the Court held the agreement unenforceable and affirmed the denial of arbitration, also addressing the Labor Commissioner’s role and the appeal mechanism under Labor Code section 98.2. (Id. at pp. 122, 140–141.)
Issue
Was OTO’s arbitration agreement — imposed on an employee in an oppressive, surprising manner and replacing the accessible Berman wage-claim process with a complex, litigation-like arbitration — unconscionable and therefore unenforceable? (8 Cal.5th at pp. 117–118, 125–126.)
Holding
Yes. Under the sliding-scale analysis, the agreement was both highly procedurally unconscionable (oppression and surprise from the manner of presentation) and substantively unconscionable. While “[a] waiver of Berman procedures . . . is not necessarily so one-sided as to make an arbitration agreement unconscionable,” such a waiver is tolerable only if the agreement “provide[s] in exchange an accessible and affordable forum for resolving wage disputes.” (8 Cal.5th at pp. 129–130.) Because the arbitral process here was unusually complex and inaccessible — and was “imposed in a procedurally unconscionable fashion” — the agreement was unenforceable. (Id. at pp. 130, 139–141.) Affirmed. (Id. at p. 141.)
Reasoning
1. The sliding scale. The Court reaffirmed that unconscionability has “a procedural and a substantive element,” both of which must be present, but which “need not be present in the same degree” — “the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required,” and vice versa. (8 Cal.5th at pp. 125–126.) The inquiry turns on “oppression or surprise due to unequal bargaining power” on the procedural side and “overly harsh or one-sided results” on the substantive side. (Ibid.)
2. Extreme procedural unconscionability. The Court found the procedural unconscionability “quite high.” (8 Cal.5th at pp. 126–129.) Beyond the ordinary adhesion of an employment arbitration agreement, the circumstances added powerful oppression and surprise: the contract was foisted on Kho at his workstation by a porter who could not explain it, he was given no time to read or seek advice, the document was a single dense, fine-print block of convoluted legal prose, and his continued employment was conditioned on immediate signature. (Ibid.) “[S]uch oppression or surprise . . . [warranted] closer scrutiny of [the agreement’s] overall fairness.” (Id. at p. 126.)
3. The Berman backdrop. The Court explained that the Berman process is designed to give employees an accessible, low-cost way to recover unpaid wages, with assistance from the Labor Commissioner and protective features on appeal. (8 Cal.5th at pp. 122–125, 130–134.) Consistent with Sonic II, waiving Berman is not categorically unconscionable, but the substantive analysis “is sensitive to the” loss of those protections: when an arbitration agreement strips away the Berman forum, “the agreement must provide in exchange an accessible and affordable forum for resolving wage disputes.” (Id. at pp. 129–130.)
4. Substantive unconscionability: an inaccessible process. The arbitration OTO designed flunked that test. (8 Cal.5th at pp. 134–140.) The process mirrored civil litigation in complexity — formal pleadings, procedures, and motion practice — such that an unrepresented employee could not realistically pursue a wage claim without a lawyer, yet the design offered none of the assistance or affordability of the Berman system. (Ibid.) Given the very high procedural unconscionability, even this degree of one-sidedness sufficed under the sliding scale to render the agreement unenforceable. (Id. at pp. 139–140.)
5. The dissent. Justice Chin dissented, arguing the majority effectively revived an arbitration-disfavoring approach inconsistent with the FAA and Concepcion, and that the complexity of the arbitral process did not make the agreement substantively unconscionable. (8 Cal.5th at pp. 141 et seq. (dis. opn. of Chin, J.).)
Significance
OTO v. Kho is the Supreme Court’s most detailed modern application of unconscionability to an employment arbitration agreement, and it shows how Sonic II’s framework operates in practice: the manner in which an arbitration agreement is imposed (oppression and surprise) can be decisive, and a wage-claim arbitral process that is not “accessible and affordable” will not survive when paired with high procedural unconscionability. It reinforces Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 and confirms that generally applicable unconscionability remains a meaningful check after Concepcion. The decision is a roadmap for both sides — employees attacking how and what was signed, and employers seeking to design genuinely fair, accessible wage-dispute arbitration. It is among the most-cited post-Concepcion California arbitration decisions. See the Review’s coverage of the arbitration line.
Key quotes
“While a waiver of Berman procedures does not necessarily render an arbitration agreement unconscionable, the agreement must provide in exchange an accessible and affordable forum for resolving wage disputes.” (OTO, supra, 8 Cal.5th at p. 130.)
Unconscionability’s elements “need not be present in the same degree . . . [;] the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required.” (Id. at pp. 125–126.)
Read the full opinion (California Supreme Court — full text) →
Practice pointer
Develop the “how it was signed” story. OTO shows that the manner of imposition can carry an unconscionability challenge: who presented the agreement, whether it was explained, the time allowed, the readability of the document, the employee’s language and sophistication, and whether signing was a condition of continued employment. Pair that procedural showing with substantive defects — here, an arbitration process so litigation-like and inaccessible that an ordinary employee could not use it to recover wages. Use Sonic II’s “accessible and affordable forum” benchmark, and contrast the lost Berman protections. Employers should make wage-dispute arbitration genuinely simple, affordable, and clearly explained, and avoid take-it-or-leave-it, fine-print presentation by untrained staff. Note Justice Chin’s dissent signals continuing FAA-preemption tension over how far this scrutiny may go.
Open questions
How much weight courts may place on the complexity of an arbitral process as “substantive” unconscionability — without offending Concepcion — remains contested, as Justice Chin’s dissent underscores. Open questions include what makes a wage-dispute forum sufficiently “accessible and affordable,” how much procedural oppression is needed to tip the sliding scale, and how OTO’s manner-of-imposition analysis applies to electronic and onboarding-packet arbitration agreements.
See also: Ramirez v. Charter Communications · Bradsbery v. Vicar Operating · Velarde v. Monroe Operations · Arzate v. ACE American