Case: Gentry v. Superior Court of Los Angeles Co. (Circuit City Stores, Inc.), No. S141502 (Cal. Aug. 30, 2007)

The One Sentence Summary: The California Supreme Court held that class arbitration waivers should not be enforced if a trial court determines that class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.

What They Were Fighting About: Plaintiff filed a class action lawsuit in superior court against Circuit City Stores, Inc. (“Defendant”), seeking damages for violations of the Labor Code. Plaintiff argued that Defendant had illegally misclassified salaried customer service managers as exempt managerial/executive employees not entitled to overtime pay, when in fact, they were non-exempt non-managerial employees entitled to be compensated for hours worked in excess of eight hours per day and 40 hours per week. When he was hired, however, Plaintiff executed an arbitration agreement with Defendant that precluded class actions. As such, Defendant moved to compel individual arbitration.

Court Holdings:

• The Court held that class arbitration waivers in overtime cases may be contrary to public policy. Specifically, the Court found that “the rights to the legal minimum wage and legal overtime compensation conferred by the statute are unwaivable,” “overtime wages are another example of a public policy fostering society’s interest in a stable job market,” and “overtime laws also serve the important public policy goal of protecting employees in a relatively weak bargaining position against ‘the evil of overwork.'”
• Accordingly, the Court set forth certain factors a trial court must consider when employees allege 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.
• First, the trial court considers the modest size of the potential individual recovery. Second, the potential for retaliation against members of the class. Third, the fact that absent members of the class may be ill informed about their rights. And lastly, other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.
• “If [the trial] court concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver….”