Late last month, the California Supreme Court decided Gentry v. Superior Court of Los Angeles County addressing the question whether the courts will enforce the provisions of an arbitration agreement waiving the right to bring a class action arbitration when overtime is sought. This has had lots of coverage in the blawgs, as you can see here, here and here, and very little in the general media (although the LA Times did cover it pretty well here). The Court held that there is a balancing process, but in most instances, it looks as though the class action wavier will be invalid. But what's interesting is the court's view of both overtime suits and class actions, both of which played key roles in the decision.
More after the jump.
The Supreme Court's logic was this:
- California has a strong public policy in favor of vigorous enforcement of its overtime laws;
- The statutory right to receive overtime pay is unwaivable;
- In some cases, waiver of the class action remedy is a de facto waiver of the right to enforce overtime laws because individual awards are modest, and there is a risk of inadequate attorneys' fees being awarded in the court's, or arbitrator's discretion, so individual awards may not be cost-effective to obtain;
- A current employee who brings individual suit runs the risk of retaliation; and
- Some individual employees may not sue because they are unaware their rights have been violated.
Based on this reasoning, the Supreme Court held that:
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.” [Citing and quoting Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076.]
While the Court states that this is a case-by-case determination, under its logic I have a hard time imagining any court allowing a class action waiver whenever a legislatively-established public policy is involved.
The Court also discussed the possibility that the provision was procedurally or substantively unconscionable -- a discussion which could affect any number of employment cases. I'm going to talk about this issue soon in another post.