FEBRUARY 2007

JUDICIAL UPDATES

Court Upholds Employment Arbitration Agreement Despite Presence of Waiver of Right to Bring Class Action Against Employer

Plaintiff, a former employee, filed a proposed class action for unpaid wages and unfair business practices against his former employer. Defendant filed a motion to compel arbitration, alleging that, before to beginning his employment; plaintiff signed an arbitration policy and an arbitration agreement agreeing to forego any right to bring claims on a representative or class member basis. Plaintiff opposed the motion to compel arbitration on the grounds, among other things; that the class action waiver rendered the arbitration agreement unconscionable. The trial court ruled that a class action waiver did not render the arbitration agreement unconscionable.

The Court of Appeal affirmed the order compelling arbitration and dismissing the class action claims. While the court assumed, for the purposes of argument, and that the class action waivers were procedurally unconscionable, the waiver clause was not substantively unconscionable because the disputed amount did not involve a predictably small amount of damages for each class member – which class action claims are designed to address. Plaintiff presented no evidence that the potential damages and penalties payable to class members would be predictably small, so as to justify a class action. Rather, plaintiff’s cause of action, typical of the other class members, are general jurisdiction claims exceeding $25,000.00. Accordingly, the order compelling arbitration was affirmed. (Konig v. U-Haul Company of California, California Court of Appeal Case No. B190547, December 19, 2006.)

When an employee or other plaintiff argues that a particular clause of a contract, such as an arbitration agreement, is unconscionable, the court will rule in the employee’s favor only when it finds that the provision is both procedurally and substantively unconscionable. This ruling upholding an arbitration agreement with a class action waiver provision is favorable for employers. Although each agreement must be evaluated on its own, and there is no guarantee that every class action waiver provision will pass the unconscionability test, it will be worthwhile for you to evaluate your company’s arbitration agreement to determine the strength of its class action waiver, or to add a class action waiver provision.

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