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Class action waiver in arbitration agreement was enforceable
January 23, 2006 by Ross Runkel at LawMemo

Arbitration agreements that contain class-action waiver clauses can be unconscionable, but they are not always so. The big case from the California Supreme Court was Discover Bank v. Superior Court (2005), which involved an arbitration class-action waiver in a bank's cardholder agreement. The court found the clause unconscionable.

What about such a clause in an employment agreement?

The California Court of Appeal has held that such a clause is not unconscionable under the facts of the particular case. Gentry v. Superior Court (California Ct App 01/19/2006).

The agreement was not procedurally unconscionable because the employee was allowed a 30 day period within which to decide whether to opt out. The employee did not opt out. Signing the agreement was not a condition of employment.

The agreement was not substantively unconscionable because it didn't fit the type of facts involved in the Discover Bank case. In Discover Bank the waiver clause was "found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages," and it was "alleged that the party with the superior bargaining power as carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money . . . ."

The Court of Appeal noted that "[t]he infirmities that plagued the Discover Bank class action waiver are not present here."

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