Wage Law

There is a significant and unresolved dispute in California over whether arbitration agreements can prohibit the pursuit of employee claims as a class action. The California Supreme Court has made it clear that such clauses are a violation of public policy, and such provisions may be stricken as unconscionable if procedural unconscionability is also present -- and procedurally unconscionability is almost always present. However, the interplay between California public policy and the Federal Arbitration Act may render the public policy moot. Until the law becomes better settled, the battleground remains in the trial courts and the arbitration forum.

Though public policy does favor arbitration, in general, judicial praise for the class action procedure has been equally fervent. "This court has repeatedly emphasized the importance of the class action device for vindicating rights asserted by large groups of persons." Izzi v. Mesquite Country Club (1986) 186 Cal.App.3d 1309, 1320. Denial of a class action in cases where it is appropriate may have the effect of allowing an unscrupulous wrongdoer to retain the benefits of its wrongful conduct. Vasquez v. Superior Court (1971) 4 Cal.3d 800, 808.

If the agreement is silent about classwide arbitration, a California court may order classwide arbitration in appropriate cases. Keating v. Superior Court (1982) 31 Cal.3d 584, 608-614, reversed on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1, 16 [104 S.Ct. 852, 861, 79 L.Ed.2d 1]; Blue Cross of California v. Superior Court (1998) 67 Cal.App.4th 42, 52; Lewis v. Prudential-Bache Securities, Inc. (1986) 179 Cal.App.3d 935, 945-946. Moreover, the court has the discretion to delay such an order until after the trial court resolves the issue of class certification. Sanders v. Kinko's, Inc. (2002) 99 Cal.App.4th 1106, 1114.

In 2003, the U.S. Supreme Court's decision in Greentree Financial Corp. v. Bazzle (2003) 123 S.Ct. 2402, held that the arbitrator, rather than the trial court, must decide whether an arbitration agreement permits classwide arbitration of claims. Many employers responded to that decision by including clauses that said that all arbitration claims must be brought individually, not in a representative or class action.

The California Supreme Court will be considering these issues presenting in the case of  Discover Bank v. Superior Court of Los Angeles County (2003) 105 Cal.App.4th 326 (Case No. S113725). In that case, the trial court ruled that a consumer's acceptance of an arbitration clause which waived the right to advance a class action violated public policy and would not be enforced. The Court of Appeal reversed, holding that the Federal Arbitration Act preempts any otherwise applicable California law determining class action waivers to be substantively unconscionable. The appeal to the California Supreme Court is fully briefed and the parties are awaiting a hearing date.

In the private sector, at least one major third-party arbitration group has come down on the side favoring classwide arbitration. JAMS has decided not to accept any arbitrations involving contracts that require a waiver of classwide claims unless that provision, itself, is waived by the participants. "JAMS unequivocally takes the position that it is inappropriate for a company to restrict the right of a consumer to be a member of a class action arbitration or to initiate a class action arbitration," the company says. "The implementation of this policy means that JAMS will not enforce these clauses in class action arbitrations and will require that they be waived in individual cases." Of course, JAMS makes more money on a classwide arbitration than it would on a small individual case, but that clearly would not might not have influenced their decision.

Wage and hour law practitioners in California, particularly those who handle employment-related class actions, encounter these issues frequently, and will eagerly await a decision in Discover Bank, as well as further word from JAMS and other large arbitration and ADR firms.