As Goes California, So Goes the Nation?
Posted on 04-Sep-07 by The Timekeeper
According to a story reported in the Los Angeles Times, the California Supreme Court ruled 4-3 on August 30, 2007 that workers have the right to bring class-action lawsuits alleging labor code violations even if they had signed agreements with their employers prohibiting them from filing suit and requiring arbitration instead.
Although the decision only applies to California employers, experts believe it’s likely the decision will undermine arbitration waivers nationally. As an attorney quoted in the article points out, national companies like to maintain consistency in their human resources policies, so a ruling like this in one jurisdiction will often affect the company’s overall policies and procedures.
This is not the first time courts in California have struck down arbitration clauses. Two years ago, the California justices invalidated an arbitration clause that prevented bank customers from bringing class action suits to resolve consumer disputes. Earlier in August, a San Francisco appeals court ruled Cingular Wireless could not force customers to sign away their right to file class-action suits against the company. (The Cingular Wireless ruling applies in several western states.)
The latest ruling stemmed from a case filed in 2002 by Robert Gentry against his former employer, Circuit City, in which he claimed the retailer had improperly denied him overtime pay. Gentry admitted he had signed an arbitration agreement when he was hired in 1995, but claimed the agreement itself violated state labor laws, and that employees were coerced into signing, fearing retribution if they didn’t.
Circuit City argued arbitration offers advantages to employees — for instance, faster and more cost-effective resolution — and that employees were allowed to opt-out for up to 30 days after they’d signed the agreement, which Gentry did not do. Two appellate court judges had agreed with Circuit City.
But the California Supreme Court noted the discussion of employee benefits failed to mention “ significant disadvantages” of the agreement. For instance, the arbitration clause limited back pay to one year, but an employee filing suit through the courts could potentially recover up to three years’ back pay. The court called the company’s arguments “markedly one-sided.”
In this case, the court didn’t go so far as to ban arbitration provisions outright, but sent the case back to trial court, instructing the trial court to invalidate such agreements if employees can more effectively pursue their rights through class actions.
In a case of trying to turn lemons into lemonaid, a company spokesperson opined that the Superior Court would “fully enforce” Circuit City’s arbitration clause when they reconsidered in light of the Supreme Court’s ruling. (Not sure how they reached that conclusion, though — the Supreme Court didn’t seem to care much for the provisions of the clause as it stands…) Of course, as you might expect, lawyers predicted a new rash of class-action suits against a variety of employers, not just Circuit City.
I understand why these kinds of arbitration clauses would be attractive to employers. To employees, not so much, maybe. So what do you think?
Is it totally wrong for employers to require arbitration, and the only realistic recourse available to aggrieved employees is the courts? Are employees (and their lawyers) just out to sock it to “The Man” and need to be reined in before they bankrupt everybody? Is it even possible to come up with arbitration provisions that are fair to both employers and employees?
Do you see this case as having the kind of far-reaching effect some experts content? Or will it mostly be confined to California, with “business as usual” elsewhere?
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