California Supreme Court Limits Availability of Class Action Waivers
Posted by Jennifer D. Barrera On August 30, 2007 the California Supreme Court issued its decision in Gentry v. Superior Court of Los Angeles, in which it significantly reduced the availability of class-action waivers in arbitration agreements for overtime wage litigation. In Gentry, a former customer service manager of Circuit City filed a class action lawsuit against Circuit City, his employer, for overtime wages and unfair business practices. Based upon an arbitration agreement Gentry signed at the beginning of his employment that contained a class-action arbitration waiver, Circuit City compelled Gentry to arbitration to pursue his claims on an individual basis. On review, the appellate court determined the class action waiver contained in the arbitration agreement was valid and that the agreement was not procedurally unconscionable, as it had a 30-day opt out provision. The California Supreme Court, however, did not necessarily agree. Although the Court did not conclude that all class action arbitration waivers are invalid, its decision requires trial courts to extensively scrutinize such provisions in arbitration agreements with regards to overtime wage litigation.
Specifically, the Court opined that the right of an employee to pursue unpaid wages is an unwaiveable statutory right under the Labor Code and improper class action waivers could have the tendency to create a “de facto waiver” as employees are more likely to pursue such claims in a class rather than on an individual basis. Given the “modest” damages at issue in overtime cases, the expense of litigation, and potential for retaliation by the employer, the Court determined employees may be too intimidated to pursue such claims on an individual basis, even through the DLSE. As such, the Court set forth several factors a trial court must consider when evaluating whether a class action waiver to pursue overtime wages that is contained in an arbitration agreement is valid.
With regards to the issue of whether the arbitration agreement between Gentry and Circuit City was procedurally unconscionable, the Court determined that it was due to the “one-sided” explanation of the benefits of arbitration, as well as a reduction in the statute of limitations to pursue unpaid wages. The agreement had also eliminated the mandatory entitlement to attorney’s fees for employees who successfully obtained unpaid wages. As a result of the procedural unconscionability, the Court remanded the case to the trial court for the trial court to review whether the agreement was substantively unconscionable.
For specific questions regarding the applicability of the Gentry decision to your workplace, please contact us directly.