Labor & Employment Law

Gentry - Opt-out clause is not a safe harbor for unconscionability

Giving an employee a 30 day period in which to opt out of an arbitration agreement will not automatically insulate an arbitration agreement from unconscionability analysis.

Gentry v. Superior Court [Circuit City] (California 08/30/2007) (4-3)

Gentry brought a class action suit claiming that the employer had misclassified salaried customer service managers as exempt from the overtime provisions of the California Labor Code. Because Gentry had signed an agreement to arbitrate, the trial court ordered arbitration and the California Court of Appeal affirmed.

The California Supreme Court (4-3) reversed and remanded.

Lower courts rejected Gentry's claim that the entire arbitration agreement was unconscionable, basing their decision on the fact that Gentry was given a 30 day period in which he could opt out of arbitration. The idea was that this eliminated any "procedural" unconscionability.

The California Supreme Court held that this opt-out provision did not insulate the arbitration agreement from unconscionability analysis.

The court found that there was still some procedural unconscionability because (a) the employer's explanation of the benefits of arbitration was "markedly one-sided"; and (b) it was "not clear that someone in Gentry's position would have felt free to opt out."

The court remanded for further unconscionability analysis of clauses that shortened the statute of limitations, limited backpay remedies, capped punitive damages, and provided that "generally" each party is liable for their own attorney fees.

[For the court's analysis of class arbitration waivers, go here.]

Full post as published by Arbitration Blog on August 30, 2007 (boomark / email).