Class Action Arbitration Waivers in California Overtime Cases

Gentry v. Superior Court (2007) 42 Cal.4th 443, was a major case addressing the issue of class action arbitration waivers in overtime cases. Gentry held that a class arbitration waiver should not be enforced "if a trial court determines, based on factors discussed below, that class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration." (Id. at p. 450.) As the court in Gentry explained: "We cannot say categorically that all class arbitration waivers in overtime cases are unenforceable. . . . Nonetheless, 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 these factors . . . : 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' rights to overtime pay through individual arbitration." (Id. at pp. 462, 463.) In Gentry, the court made clear that the question of whether a class action waiver is enforceable depends upon a factual inquiry to determine whether or not, in light of the claims being asserted, a class action will be a "more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration." (Id. at p. 463.) Thus, a class action waiver in an arbitration agreement will be invalidated only "after the proper factual showing." (Id. at p. 466.) The court in Gentry also addressed the claim by the plaintiff that the arbitration agreement as a whole--not just the class action waiver--was unenforceable. The court observed that "should the trial court on remand find the class arbitration waiver in the present case to be void, it is unclear whether the issue of the unconscionability of the arbitration agreement as a whole will become moot, because it is unclear whether Gentry will continue to resist arbitration or whether the employer will continue to seek it." (Id. at p. 467.) Thus, the Supreme Court in Gentry observed that a finding of procedural unconscionability "is a prerequisite to determining that the arbitration agreement as a whole is unconscionable" (id. at p. 451), and proceeded to discuss the employer's argument that the entire agreement was not unconscionable because Gentry had a 30-day period to opt out of the agreement. (Id. at p. 472.) The court concluded that, based on some of the terms in the employee handbook and some arbitration limitations (id. at pp. 470-471), "the present agreement has an element of procedural unconscionability notwithstanding the opt-out provision, and therefore remanded for a determination of whether provisions of the arbitration agreement were substantively unconscionable." (Id. at p. 451.)