ADR Case Updates
Class Arbitration Waivers in Employment Arbitration and Cellular Phone Service Agreements May Be Invalidated, 09/04/07
In case you have not seen them, attached are two recent cases dealing with class arbitration waivers. The first is the California Supreme Court decision in Gentry v. Superior Court (Circuit City Stores, Inc., filed August 30, 2007), holding that class arbitration waivers in employment arbitration agreements may not be enforced across the board to preclude class arbitrations by employees seeking overtime pay pursuant to Labor Code sections 500 et seq. and 1194.
A blanket prohibition of classwide relief would, in at least some cases, undermine the vindication of the employees unwaivable statutory rights and would pose a serious obstacle to the enforcement of the states overtime laws. Accordingly, such class arbitration waivers should not be enforced if a trial court determines, based on a number of factors, that class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration. Those factors include: 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.
In addition, the employment agreement at issue gave Gentry 30 days to opt out of the arbitration agreement. Circuit City, the employer, argued that such a provision in the agreement does not make it procedurally unconscionable, thereby insulating it from employee claims that the arbitration agreement is substantively unconscionable or unlawfully exculpatory. However, the Court held that a finding of procedural unconscionability is not required to invalidate a class arbitration waiver if that waiver implicates unwaivable statutory rights.
Also attached is the Ninth Circuit case of Shroyer v. New Cingular Wireless Services, Inc. (filed August 17, 2007), holding that the class arbitration waiver in New Cingular Wireless Service Inc.s standard contract for cellular phone services was unconscionable under California law, and not preempted under the Federal Arbitration Act, thereby reversing the district courts order compelling arbitration.
These cases demonstrate the courts emphasis on protecting statutory rights and consumers victimized by unconscionable terms even at the expense of invalidating arbitration clauses that are normally upheld in other contexts.
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