In another 4-3 split employment opinion, the Supreme Court did not hold that class action waivers in employment contracts are per se unenforceable. However, it laid down a new multi-factor test to determine whether "class arbitration would be a significantly more effective way of vindicating the rights of affected employees." (Slip Op. 2.) The Court distinguished its opinion in Discover Bank on the grounds that employee wage and hour claims are based on statutory rights. (Slip Op. 8-9.) The Court set out four factors for determining whether class status should be granted notwithstanding a lass action waiver:
(1) modest size of potential individual recovery (the Court implied that even $37,000 was not enough [Slip Op. at 13], but implied that $269,000 was sufficient [Slip. Op. 15-16]);
(2) the potential for retaliation against the members of the class;
(3) the fact that absent members of the class may be ill-informed of their rights; and,
(4) other "real world obstacles to the vindication of class members' rights to overtime pay through individual arbitration."
(Slip. Op. 21.) These factors should inform the court whether " class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees [;and, 2] the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws." (Ibid.)
Class-action waiver provisions, despite all of this, are severable, and do not void the entire agreement. . . necessarily. (Slip Op. 27.)
The Court added that its foregoing analysis was based on statutory rights, and not unconscionability. (Ibid.) It goes on to address unconscionability, however. It holds that the circumstances present in employment contract negotiations usually contain some element of procedural unconscionability due to the lack of legal sophistication by the employee and unequal bargaining power/economic power. (Slip Op. 31-35 [rejecting two Ninth Circuit cases with contrary results, both involving Circuit City].) As such, the Court says the lower courts should check for elements of substantive unconscionability. (Slip. Op. 37.) I interpret this to imply that most employment contracts are tainted with procedural unconscionability, which I do not think is a new concept.
It is worth pointing out that, though not expressly holding that this
ruling applies to FEHA claims, or even other kinds of wage/hour claims, the Court did analogize the
statute-based public policy origin of overtime wage and hour laws to
rights under the FEHA. (Slip. Op. 11.) Therefore, public-policy-based claims of any stripe are probably covered by this analysis.
Interestingly, the Court completely dismissed the DLSE as an enforcement vehicle suitable for enforcing individual claims, even though it is free. "It is true that an employee may seek administrative relief from overtime violations with the Labor Commissioner...[b]ut a losing employer has a right to trial de novo in superior court, where the ruling of the Labor Commissioner's hearing officer is entitled to no deference. . . Thus, Berman hearings may result in no cost savings to the employee." (Slip. Op. at 24.)
Of course, if the employee recovers one cent more than the DLSE awards, he is entitled to attorneys' fees, and may be represented at no cost by a DLSE attorney in that matter. Since the court was so focused on practicalities, I was surprised that it missed that part of it.
But, the Court said, this was not practical because a "flood" of claims would over-burden the DLSE. (Ibid.) That sounds like a problem for the Legislature to me. Wouldn't the Superior Courts be equally over-burdened if many individual claims were filed? Does that mean that, as a practical matter, employees can't use the Courts? Doesn't that violate the First Amendment? What's interesting is that, in the context of employment claims, there are administrative agencies interested in enforcement, which may or may not be the case in other claims (is there a special court to file claims against Discover card?) yet this does not matter to the court.
Though the court did at times seem to make pains to refer to "class arbitration waivers," at other times it seems to mix language, implying this applies to class action waivers outside of arbitration. (Slip. Op. 10-11.) Given the implication that this ruling applies to many of the oft-litigated employment statutes, it appears this kind of class action waiver is a bad idea for employers, except under very special circumstances (associates at a law firm?).
The UCL Practitioner has a blurb, here. She should have more soon.
Wage Law has this analysis:
Thought equivocal in the holding, it would appear that the factors that the Supreme Court requires the lower courts to consider would favor permitting class arbitrations in the vast majority of wage and hour cases. The majority opinion discussed, at length, three factors that favor permitting arbitrations to proceed as class actions.
I agree. In fact, I think if you really look at those factors, you are left with situations where the Plaintiff will not even elect to sue as a class much of the time. They add:
[T]he opinion strongly favors the rights of employees in wage and hour class actions and in wage cases generally. The language in Gentry v. Superior Court is so interesting that it instantly becomes one of those cases that every wage and hour practitioner should keep in a Word file with a shortcut to it on their desktop.
I agree with that too (except for the part about a Word document--use OpenDoc!). I think the practical effect of this case will far exceed its holding. In fact, I expect it to add new dimensions to practically every employment case. If every employment contract of this kind has some procedural unconscionability, and that allows an analysis of potentially unconscionable substantive terms, isn't the mere signing the employee to the agreement a violation of the law? (Application Group v. Hunter Group.)