Class Action Arbitration Waivers May not Be Enforced (10/5/2007)

By Anthony P. Raimondo

In Gentry v. Superior Court of Los Angeles County (August 30, 2007) the California Supreme Court held that class action waivers in arbitration agreements may or may not be enforced, depending on whether the class arbitration would be a significantly more effective way of vindicating the rights of employees than individual arbitration. If a dispute involves a small amount of damages and a group of employees with the same dispute, then class arbitration may be the most efficient and least expensive way of enforcing employee rights. Further, if one provision of an arbitration agreement is deemed unenforceable, the entire agreement may still be effective depending on factors such as whether the employer had superior bargaining power or if the agreement gave employees fewer rights through arbitration than they would have through the courts.

COUNSEL TO MANAGEMENT:

Despite clear rulings by the federal courts all the way up to the U.S. Supreme Court upholding the use of mandatory arbitration agreements as a condition of employment, the California courts continue to show resistance to arbitration. This decision opens the door to courts determining whether a waiver of the right to proceed with arbitration on a class basis is enforceable on a case by case basis. Ultimately, the court (or in some cases the arbitrator) will decide whether it thinks the case should proceed on behalf of a class of employees, and that discretion can trump the agreement.

While arbitration remains a useful tool for employers, they must be aware that a class waiver may not be enforced. In light of the courts’ hostility towards mandatory arbitration and their desire to find such agreements to be unenforceable, employers must be sure that arbitration agreements are properly drafted and limit employees’ right to pursue legal theories or remedies that would be available in court. Legal counsel should review all such agreements.

The goal of this article is to provide employers with current labor and employment law information. The contents should neither be interpreted as, nor construed as legal advice or opinion. The reader should consult with Saqui & Raimondo at (831) 443-7100 in Salinas, or (916) 782-8555 in Sacramento for individual responses to questions or concerns regarding any given situation.