Several years ago, the
California Supreme Court ruled that a class action waiver in a consumer credit card
agreement wasn’t enforceable. Because most individuals wouldn’t have the
resources to challenge small credit card fees without a class action, a class
action waiver would improperly insulate a credit card company from
accountability for wrongdoing, the high court reasoned. In the aftermath of
that ruling, it was unclear whether class action waivers in other contexts,
such as employment, would be similarly prohibited. But in a lawsuit challenging
an employer’s wage and hour practices, a
appeals court has upheld a class action waiver. We’ll explain why.
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Wage-Hour Suit Filed
Ron Konig filed a class
action suit in
against U-Haul Company of California Inc., alleging that the company
misclassified employees as outside salespersons and failed to pay them overtime
when they worked more than 8 hours in a day or 40 hours in a week. The lawsuit
also charged that U-Haul didn’t provide employees with required meal and rest
breaks. Konig noted that his own personal damages exceeded $25,000.
Arbitration Policy
U-Haul asked the court
to send the case to arbitration and dismiss the class action claims because the
wage-hour dispute was covered by its mandatory arbitration policy. Further, the
arbitration policy prohibited employees from filing class action arbitration
claims by stating that employees “forego and waive any right to join or
consolidate claims in arbitration with others or to make claims in arbitration
as a representative or as a member of a class or in a private attorney general capacity.”
The policy acknowledgment, which Konig signed, stated that the employee
understood that by agreeing to the arbitration policy, the employee gave up
“any right to bring claims on a representative, class member basis, or as a
private attorney general.”
Konig countered that the
arbitration agreement was unconscionable—and therefore not enforceable— because
it prohibited class actions. But the trial court sided with U-Haul and
dismissed the class action claim.
Waiver Upheld
The
dismissal, finding that U-Haul’s class action waiver was valid.1 The court explained that
the prior California Supreme Court decision on class action waivers did not
hold that all such waivers are unconscionable—only those in which disputes
would “predictably involve small amounts of damages.” The high court reasoned
that the waiver was not enforceable because most individuals would not have the
resources to challenge small credit card fees without a class action. So the
absence of a class action option in the consumer credit context would
effectively shield a company from liability for wrongdoing.
But here, said the
appeals court, Konig didn’t present evidence that the wage and hour claims
involved predictably small amounts of damages for each class member. What’s
more, the court pointed out, just the penalties for missed meal and rest breaks
could add up to large sums for individual employees, as much as $1,000 in one
month alone, in light of the Labor Code penalty of $50 for the first violation
and $100 for subsequent violations.
Where Do We Go from
Here?
Note that this decision
isn’t the last word on the validity of class action waivers in the wage and
hour context. Last year, the same
appeals court upheld a class action waiver in another wage and hour suit, and
the case is now under review by the California Supreme Court.
While this issue is
being sorted out, employers should consider inserting class action waiver language
similar to that used by U-Haul into mandatory arbitration agreements. If the
California Supreme Court eventually upholds such waivers, the language can be a
practical tool to help fend off expensive wage and hour class actions.
You can link to the new court
ruling online at www.courtinfo.ca.gov/opinions/.
_
1 Konig v. U-Haul Company
of
B190547, 2006