Class Action Waivers in Employment Arbitration Agreements

In Gentry v. Superior Court (2007) 42 Cal.4th 443, the court addressed the question "whether class arbitration waivers in employment arbitration agreements may be enforced to preclude class arbitrations by employees whose statutory rights to overtime pay under the Labor Code allegedly have been violated." (Id. at p. 450.) The court noted the Legislature through its enactment in the Labor Code established "'"a clear public policy"'" that "minimum wage and overtime laws should be enforced in part by private action brought by aggrieved employees." (Id. at p. 455.) So great is the public policy protecting employees' right to overtime compensation that the right is "unwaivable." (Ibid.) The question the court had to consider was "whether a class arbitration waiver would lead to a de facto waiver of statutory rights, or whether the ability to maintain a class action or arbitration is 'necessary to enable an employee to vindicate ... unwaivable rights in an arbitration forum.'" (Gentry v. Superior Court, supra, 42 Cal.4th at p. 457.) The court concluded that under certain circumstances, a class arbitration waiver would result in a de facto waiver of statutory rights "and would impermissibly interfere with employees' ability to vindicate unwaivable rights and to enforce the overtime laws." (Ibid.) The court observed that class arbitration waivers in wage and overtime cases would frequently exculpate employers for violations and undermine the enforcement of wage and overtime laws. (Gentry v. Superior Court, supra, 42 Cal.4th at p. 457.) First, violation of these laws usually involves lower income employees and modest individual awards. (Id. at pp. 457-458.) Their potential recoveries may be too small to warrant individual litigation, in that the costs of litigation often would exceed the amount of recovery. (Id. at pp. 458-459.) Second, current employees suing their employers run a greater risk of retaliation. (Gentry v. Superior Court, supra, 42 Cal.4th at p. 459.) For them, individual litigation may not be a viable option. (Ibid.) Courts "have widely recognized that fear of retaliation for individual suits against an employer is a justification for class certification in the arena of employment litigation." (Id. at p. 460.) Third, employees may be unaware of the violation of their rights and their right to sue. (Gentry v. Superior Court, supra, 42 Cal.4th at p. 461.) Specifically, they "may not be aware of the nuances of overtime laws with their sometimes complex classifications of exempt and nonexempt employees. The likelihood of employee unawareness is even greater when ... the employer does not simply fail to pay overtime but affirmatively tells its employees that they are not eligible for overtime." (Ibid.) Given these considerations, the Supreme Court concluded that "'class actions may be needed to assure the effective enforcement of statutory policies even though some claims are large enough to provide an incentive for individual action. While employees may succeed under favorable circumstances in recovering unpaid overtime through a lawsuit or a wage claim filed with the Labor Commissioner, a class action may still be justified if these alternatives offer no more than the prospect of "random and fragmentary enforcement" of the employer's legal obligation to pay overtime.' " (Gentry v. Superior Court, supra, 42 Cal.4th at p. 462.) The class action not only benefits the individual employee but also "'serves the public interest in the enforcement of legal rights.'" (Ibid.) The court did not state "categorically that all class arbitration waivers in overtime cases are unenforceable." (Gentry v. Superior Court, supra, 42 Cal.4th at p. 462.) It did state, however, that "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 the factors discussed above: 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 p. 463.) If these factors weigh in favor of class arbitration, the trial court must invalidate the class arbitration waiver. (Ibid.) Gentry highlights the importance placed on the rights of employees to bring class action lawsuits to enforce their statutory rights to overtime pay. So high is the importance of these rights that courts may invalidate contractual provisions that infringe upon them. Gentry also highlights the dangers of placing in the employer's hands the responsibility for notifying employees of the pending litigation and requiring employees to opt in to the litigation.