Arbitration Agreements in California Set to Make a Comeback

In California, agreements to arbitrate employment claims (at least with respect to non-union employees) are not particularly in demand. California courts have removed many of the advantages employers (e.g., simpler discovery, cost-sharing, limitations on damages). Arbitration agreements that contain such provisions are struck down by courts as "unconscionable." So, the primary benefit of arbitration agreements in California is the transfer of a claim from a potentially hostile pool of employee-jurors to an arbitrator, hopefully a fair one with expertise in employment law.

Until now. Of late, courts have wrestled with the issue of whether an arbitration agreement can include a provision (1) requiring arbitration but (2) prohibiting the plaintiff from bringing a "class action." In the Discover Bank v. Superior Court(2005) 36 Cal.4th 148 case, decided last year, the California Supreme Court held that consumer class actions could not be barred by arbitration clauses. However, the High Court left the door open a crack for class action waivers in claims for larger damages - such as employment claims. The Court of Appeal in Gentry v. Superior Court(2006) 135 Cal.App.4th 944, review granted April 26, 2006, S141502 held that Discover Bank did not bar class action waivers in employment claims, but as you can see, the Supremes accepted review of that case in April 2006, rendering it not citable as authority.

Well, in Konig v. U-Haul Company of California, the California Court of Appeal again held that Discover Bank does not bar class action waivers in employment claims. Konig brought a class action against U-Haul for a varieity of alleged wage and hour violations on behalf of himself and a class of U-Haul employees. U-Haul moved the court to compel Konig to arbitrate his claims based on an arbitration agreement he signed, which included the following language: "I understand that final and binding arbitration will be the sole and exclusive remedy for any such claim or dispute against [defendant]... and that, by agreeing to use arbitration to resolve my dispute, both [defendant] and I agree to forego any right we each may have had to a jury trial on issues covered by the [U-Haul Arbitration Policy], and forego any right to bring claims on a representative, class member basis, or as a private attorney general."

The Court of Appeal once again upheld this class action waiver under Discover Bank. Now before you run to your employment lawyer, a couple of caveats. First, the California Supreme Court has taken up this issue in Gentry, mentioned above. So the Supreme Court may well take this case up, too. Second, there was a dissent in this case, which makes it even more likely that the Supreme Court will accept review. So, the Supreme Court may answer the question of class action waivers once and for all within the next year or two.

Happy holidays to our readers and their families.

DGV