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Class action waiver goes to California Supreme Court
May 18, 2006 by Ross Runkel at LawMemo

Will a court enforce an arbitration class-action waiver in a case arising under wage and hour statutes? The California Supreme Court will decide that question.

In Gentry v. Superior Court (California Ct App 01/19/2006) a lower court held that a class action waiver could be enforced. The California Supreme Court said it would review the Gentry case. [Press release]

The uncertainty arises because the decision in Discover Bank v. Superior Court 36 Cal. 4th 148 (2005), which held such a clause to be unconscionable in a case involving credit card holders whose individual claims involved small amounts of money.

Gentry sued the employer in a putative class action, asserting claims for violations of state statutes. The claims arose from the employer's alleged misclassification of Gentry and others as "exempt" managerial or executive employees not entitled to overtime pay. The trial court granted the employer's petition to compel arbitration pursuant to the employer's arbitration agreement. Since the agreement contained a provision waiving Gentry's right to pursue a class action, the trial court ordered Gentry to arbitrate on an individual basis.

On remand from the California Supreme Court for reconsideration in light of Discover Bank v. Superior Court 36 Cal. 4th 148 (2005), the court concluded that the class action waiver was enforceable.

The court determined that the class action provision was

• not procedurally unconscionable because Gentry was given 30 days within which to opt out of the arbitration agreement
• 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 reasoning in Discover Bank was extremely narrow. It would need to be expanded in order for the Gentry case to fit.

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