California Supreme Court: Class Action Waiver in Arbitration Clause Void in Overtime Case; Opt-Outs Not a Shield

Well, the California Supreme Court giveth and it taketh away. If you enjoyed the Court's decisions in the Ralph's and Green cases issued last week, you might have been looking forward to another employer victory in the Gentry opinion. Not so much.

In fact, not at all. The California Supreme Court in another 4-3 split, decided that class action waivers may be deemed invalid. Trial courts must decide, case by case, whether a class action waiver is void according to these criteria:

when it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above:

- the modest size of the potential individual recovery,

- the potential for retaliation against members of the class,

- the fact that absent members of the class may be ill informed about their rights, and

- other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.

If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual
litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can “vindicate [their] unwaivable rights in an arbitration forum.”

The above may be the headline, but the rest of the opinion is worse. Disagreeing with the Ninth Circuit, the court decided that Circuit City's "opt-out" provision did not save an arbitration agreement from procedural unconscionability. Here the Court frankly just made up a rationale for why an employee who has a 30 day period to choose whether to sign an agreement actually may not have any choice. The Court had to do this, or its unconscionability jurisprudence would not apply simply because the employer gave the employee a meaningful chance to either sign or not sign the arbitration agreement.

Justices Moreno, Werdegar, Kennard, and ... Chief Justice George made up the majority. Justices Baxter, Corrigan and Chin joined in the dissent.

Wow, this is another blow to using arbitration agreements in employment cases. It's almost at the "why bother" stage.

The case is Gentry v. Superior Court (Circuit City Stores)

DGV