ADR Case Updates
Wage and Hour Class Action Waiver Compelling Arbitration Is Exculpatory, Unconscionable, And Unenforceable, 10/31/07
Four recent cases dealing with arbitration have been handed down since our 09/04/07 ADR Case Update. Perhaps the most notable is Murphy v. Check N Go of California, Inc., 2007 DJDAR 115905, filed October 17, 2007.
Lisa Murphy was employed as a salaried retail manager by Check N Go, a payday lending company. One year before her employment ended, she signed a Dispute Resolution Agreement prepared by Check N Go, requiring arbitration of disputes against it, and waiving her right to pursue a class action. After her employment ended, she filed suit in superior court alleging that Check N Go had misclassified her and other salaried retail managers as exempt employees under state wage and hour laws.
Check N Go brought a motion to compel arbitration. Murphy opposed the motion on grounds of unconscionability. Her attorneys submitted declarations stating that it was difficult for individual plaintiffs to find legal representation in light of the relatively small amounts of damages involved, notwithstanding the availability of statutory attorney fees, and that class actions were the only way to seek redress of wage and hour violations. The trial court sided with Murphy, and denied the motion to compel, finding inter alia, that the Dispute Resolution Agreement was a contract of adhesion, and that the agreements class action waiver was substantively unconscionable under Discover Bank v. Superior Court (2005) 36 Cal. 4th 148. The trial court also concluded that the court, not an arbitrator, must make that determination in the first instance, and that the unconscionable terms would not be severed from the agreement.
Affirmed. Although the Dispute Resolution Agreement clearly stated that any issues of procedural or substantive unconscionability should be decided by the arbitrator, Murphys consent was vitiated by the fact that it was set forth in a standardized contract of adhesion, prepared by the stronger party, and presented to the weaker party on a take it or leave it basis. Murphys undisputed declaration stated that she received it through interoffice mail, that no one explained it to her, and that she was never told it was optional or negotiable. The appellate court inferred from this evidence that Murphys consent was a condition of her continued employment. Therefore, substantial evidence supported the trial courts finding that the Dispute Resolution Agreement was a contract of adhesion.
While class action and arbitration waivers are not in the abstract exculpatory, they can be in the context of a case like this one where relatively small amounts of damages are involved, and plaintiff alleges that their enforcement results in insulating the employer from liability that would otherwise be imposed -- aggrieved parties cannot get representation in individual, small cases. Therefore, the waiver becomes in practice an exemption of liability making it unconscionable and unenforceable.
This case demonstrates the importance of developing the record at the trial level in bringing or opposing a motion to compel arbitration by introducing admissible evidence. Both parties requested the appellate court to take judicial notice. Defendant wanted to show that non-class action wage and hour complaints had been filed in superior court to rebut the notion that plaintiffs cannot get legal representation in wage and hour cases. Murphy wanted to demonstrate that claims brought before the Labor Commissioner are not an adequate substitute for court proceedings. The appellate court denied both requests to take judicial notice. Would the result in this case have been different if such evidence was raised at the trial level?
In Comedy Club, Inc., v. Improv West Associates, 2007 DJDAR 13949, filed September 7, 2007, the Ninth Circuit held that the court lacks jurisdiction to review an untimely appeal from an order compelling arbitration, but confirmed the arbitrators authority to resolve disputes arising from the underlying trademark agreement.
In Marcario v. County of Orange (2007) 155 Cal. App. 4th 397, filed September 19, 2007, the Court of Appeal held that arbitration of an employees labor grievance could not be given binding effect with regard to statutory claims not explicitly noted in the collective bargaining agreement between her Union and employer.
Finally in Collins v. Horton, 2007 DJDAR 14911, filed September 24, 2007, the Ninth Circuit held that absent well defined binding precedent, the arbitrators refusal to apply offensive non-mutual collateral estoppel - a version of the doctrine of collateral estoppel that arises when a plaintiff seeks to estop a defendant from relitigating an issue that defendant previously litigated and lost against another plaintiff - to judgment pending appeal does not manifestly disregard the law.
These cases demonstrate the courts tendency to provide great deference to arbitrators in affirming their awards provided that the underlying agreement upon which parties arbitrate grants sufficient authority to the arbitrator.
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