Wage Law

In the first published post-Gentry class action arbitration case, the First District Court of Appeal has affirmed an order denying a motion to compel arbitration. Murphy v. Check 'N Go of California, Inc. (2007) __ Cal.App.4th __. In Gentry, the Supreme Court set forth a standard for reviewing arbitration clauses with class action waivers, requiring lower courts to consider several factors which inherently favor employees seeking to invalidate the provisions, including: the modest size of any potential individual employee's wage claim, the possibility that putative class members would be retaliated against if they pursued individual claims, the fact that absent class members might not be well informed about their rights, and the difficulties in enforcement of putative class members' rights through individual arbitrations. After considering these factors, if the court finds that class arbitration is likely to be a significantly more effective means of enforcing employee rights, it must invalidate the class action waiver.

In Check ‘N Go, the court of appeal applied those factors and concluded that the agreement was both substantively and procedurally unconscionable with respect to the mandatory arbitration provision, the class action waiver and a third provision that bestowed upon the arbitrator the right to determine whether the arbitration agreement was enforceable.

Defendant Check ’N Go of California, Inc., appeals from an order denying its motion to compel arbitration of a wage and hour case filed by plaintiff Lisa Murphy.  The main issues are whether the class action waiver in the arbitration agreement is unconscionable, a question we review with the benefit of the recent decision in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry), and whether that question should be resolved by the court, rather than an arbitrator appointed under the agreement.  We conclude that the court was empowered to decide the unconscionability issue, agree with its ruling that the class action waiver is unconscionable, and affirm the order denying the motion to compel arbitration.

The court found that the agreement was a contract of adhesion. It was undisputed that employee received the agreement through interoffice mail, the terms were never explained to her, and she was never told that the agreement was optional or negotiable, supporting an inference, under the Gentry standards, that the employee reasonably expected that she was required to sign the contract as a condition of continued employment. The provisions were one-sided, and exculpatory, given the relatively small size of individual claims and the need for the class action remedy to deter the employer from misclassifying employees. Furthermore, the trial court did not abuse its discretion in refusing to enforce the entire arbitration agreement, rather than just severing the unconscionable provisions, because the agreement was permeated with unconscionability.

You can download the full text of Check ‘N Go here in pdf or word format.