Labor & Employment Law

GENTRYfication of class action waivers

"Gentryfication" - A new word for a new legal theory. Or an old theory used in a new way.

California has adopted a new, perhaps easier, way to attack class action waivers.

The standard attack has been on the ground of unconscionability.
The new attack is on the ground of public policy.
Why does it matter?

Unconscionability: A theory in search of predictability.

In order to get a court to throw out a "nasty" contract clause under the theory of unconscionability, the attacker must demonstrate both procedural and substantive unconscionability. The fact that the clause is "nasty" (unfair, overly burdensome to one side, etc.) establishes the substantive unconscionability. The procedural unconscionability requires a showing of unequal bargaining power, a take-it-or-leave-it offer, abuse of the bargaining process, some trickery, or some other "unfairness" in the negotiation of the contract. Some courts use a sliding scale: The worse the substantive clause, the less bad the procedural unconscionability has to be. This obviously results in lack of predictability, and lots of litigation.

Public policy: A simpler theory.

The public policy theory has its focus on the allegedly "nasty" clause. There is no need to inquire into the "procedural" aspects such as unequal bargaining power. A simple rule: If a contract clause violates public policy, the a court will not enforce the clause.

In Gentry v. Superior Court [Circuit City] (California 08/30/2007) (4-3) the California Supreme Court held that in some cases a class arbitration action waiver may be contrary to public policy.

The employee (Gentry) was claiming a violation of California's statutory overtime rules. The court said that Gentry had an "unwaivable" statutory right to overtime pay. Then the court said that in some cases a class action waiver "would lead to a de facto waiver [of the statutory right] and would impermissibly interfere with employees' ability to vindicate unwaivable rights and to enforce the overtime laws."

True, the court said there are a number of other factors to be examined. But my point is that Gentry did not have to demonstrate any "procedural unconscionability" in order to prevail.

Full post as published by Arbitration Blog on October 24, 2007 (boomark / email).