Litigating California Wage & Hour and Labor Code Class Actions
Litigating California Wage & Hour and Labor Code Class Actions
Litigating California Wage & Hour and Labor Code Class Actions
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the <strong>California</strong> Supreme Court issued two decisions – Discover Bank <strong>and</strong> Gentry – that severely<br />
hampered the ability of an employer in <strong>California</strong> to enforce a class action waiver in an employment<br />
arbitration agreement.<br />
In Discover Bank v. Superior Court, 500 the Court struck down as unenforceable a class action<br />
waiver in a consumer contract. The Discover Bank case involved a credit card holder who initiated<br />
a class action alleging that Discover Bank had made misleading statements that imposed late fees<br />
on him <strong>and</strong> thous<strong>and</strong>s of other credit card holders. Meanwhile, Discover Bank had included a<br />
notice within the card holder’s monthly bill that the arbitration agreement was being amended to<br />
preclude class actions <strong>and</strong> that the credit card holder would have to cancel the credit card to<br />
prevent this change from going into effect. Although the agreement provided for alternative means<br />
of recovery, individual card holders had little incentive to sue over the imposition of a small late fee.<br />
In a split decision, a bare majority of the <strong>California</strong> Supreme Court held that the class action waiver<br />
within the arbitration agreement rendered the arbitration agreement unconscionable. The primary<br />
bases for the ruling in Discover Bank were that the arbitration agreement was part of a “bill stuffer”<br />
that made it a true contract of adhesion <strong>and</strong> that the claims at issue in the consumer setting were<br />
too small to be viable without resorting to the class action device. 501<br />
The reasoning of Discover Bank would not seem to preclude class action waivers in the<br />
employment context. After all, <strong>California</strong> has in place procedures to incentivize individual<br />
employees to sue to recover for <strong>Labor</strong> <strong>Code</strong> violations (including various substantial penalties <strong>and</strong><br />
the right to recover attorney’s fees). Moreover, m<strong>and</strong>atory arbitration <strong>and</strong> class action waivers are<br />
usually presented to employees in a more visible manner than a bill stuffer with a credit card bill.<br />
In Gentry v. Superior Court, 502 the <strong>California</strong> Supreme Court took review of an employment case<br />
that seemed to provide good facts for the employer. The employee at issue presented no evidence<br />
that he had been coerced to agree to arbitration <strong>and</strong>, on the contrary, the employee had declined to<br />
take advantage of a company policy that allowed him to opt out of m<strong>and</strong>atory arbitration of<br />
employment disputes. Despite these facts, the seven <strong>California</strong> Supreme Court justices split along<br />
the same 4-3 lines as in Discover Bank <strong>and</strong> invalidated the class action waiver.<br />
In concluding that class action waivers in arbitration agreements are generally not enforceable, the<br />
majority first noted that the rights to minimum wage <strong>and</strong> overtime compensation are unwaivable<br />
statutory rights. The majority reasoned that class action arbitration waivers may tend to create a<br />
“de facto waiver” of employee rights, as employees are more likely to pursue such claims in a class<br />
action rather than on an individual basis. Given the “modest” damages at issue in many overtime<br />
500<br />
501<br />
502<br />
36 Cal. 4th 148 (2005).<br />
Id. at 161.<br />
42 Cal. 4th 443 (2007).<br />
Seyfarth Shaw LLP | www.seyfarth.com <strong>Litigating</strong> <strong>California</strong> <strong>Wage</strong> & <strong>Hour</strong> <strong>Class</strong> <strong>Actions</strong> (12th Edition) 113