Class Action

Another "no-class-action" arbitration clause bites the dust: Franco v. Athens Disposal Co.

By Kimberly A. Kralowec

In Franco v. Athens Disposal Co., ___ Cal.App.4th ___ (Mar. 10, 2009), the Court of Appeal (Second Appellate District, Division One) applied Gentry in a case for meal period and rest break violations:

[T]he primary issue on appeal is whether Gentry applies to claims for meal and rest periods under the Labor Code (§§ 512, 226.7) and the Wage Order (§§ 11, 12). We conclude it does. Discover Bank, a consumer case, laid the foundation for Gentry, an overtime case. And it is but a small step from the overtime claims in Gentry to the meal and rest period claims here. Although overtime compensation is undoubtedly important (see Gentry, supra, 42 Cal.4th at p. 456), the state has a significant interest in making sure that the drivers of commercial vehicles receive sufficient food and rest while on the job.

Slip op. at 11. After a detailed analysis, the court concluded that the entire arbitration clause (not just the class action ban) was unenforceable and that the claims would proceed "in a court of law." Id. at 27.

Other holdings of note: 

• An order enforcing a "no-class-action" arbitration clause, and ordering the claims to proceed on an individual basis, was "the 'death knell' of class litigation" and was therefore appealable under the general rule that orders denying certification of an entire class are final.  Slip op. at 8.  This is an important rule for litigants to remember because it means that to preserve your appellate rights, you have to file your notice of appeal mid-case whether you want to or not.

• The trial court contravened Linder by ruling on the merits of plaintiffs' overtime claim (and then disregarding that claim) in the course of deciding whether the arbitration clause was enforceable: "Here, the trial court granted a de facto summary adjudication motion on the overtime claim in determining the enforceability of a class arbitration waiver. That was error. Absent a demurrer or dispositive motion ? [the defendant] brought none ? Franco?s overtime claim had to be considered as part of the case in deciding the validity of the class arbitration provision."  Slip op. at 11; see id. at 20 (citing Linder and Gentry). 

• Contrary to the defendant's position, the laws governing meal periods and rest breaks are not waivable.  Slip op. at 14-16.  Therefore, "to the extent [if any] Gentry may be limited to unwaivable statutory rights [such as the right to overtime implicated in Gentry], under [Labor Code] section 219, the meal and rest period laws cannot be waived."  Id. at 16.  The court said in no uncertain terms that Labor Code section 226.7(a) "requires employers to comply with the meal and rest period provisions of the Wage Order[s]."  Slip op. at 15 (emphasis added). 

• The trial court incorrectly determined that the meal period and rest break claims would be "so individualized as to render class arbitration treatment significantly less effective than individual arbitrations."  Slip op. at 21.  To the contrary:

  At this early stage in the litigation, we know that [the defendant] uses a computer and an electronic timecard system to keep track of its employees? work hours. By law, an employer must maintain time records showing an employee?s (1) ?total daily hours worked? and (2) meal periods, unless ?operations cease? during meals. (Wage Order, § 7(A)(3).) Further, [the defendant] allegedly engaged in a systematic course of illegal payroll practices and policies in violation of the Labor Code and subjected all of its hourly employees to the same unlawful conduct. As a result, common questions of law and fact predominate over individualized issues.

  Id.   (Incidentally, all of the Wage Orders, not just the one construed here, contain that same recordkeeping requirement.)

• The Wage Orders provide civil penalties for violation of section 226.7(b)'s requirement that employers pay premium wages for missed meal periods and rest breaks.  Slip op. at 25-27.  Those civil penalties are recoverable under the Private Attorney General Act ("PAGA").  Id. at 26.   The defendant's arbitration agreement "sought to nullify the PAGA" and purported to preclude all employees "from seeking civil penalties on behalf of other current and former employees, that is, from performing the court function of a private attorney general."  Id. at 27.  Hence, the entire agreement was "tainted with illegality" and "unenforceable."  Id.

Full post as published by The UCL Practitioner on March 17, 2009 (boomark / email).