Class action litigation of employment-based claims commenced by disgruntled employees against their former employers have been a growing concern for employers across the country, but particularly in California where state statutes provide creative plaintiffs' lawyers with an array of options. In an effort to stave off such actions, some California employers have been including class action waivers in employment agreements. Most recently, class action waiver agreements received a shot in the arm when two California courts ruled that they were enforceable if properly implemented. The first opinion, Gentry v. Superior Court (Circuit City, Real Party in Interest), issued by the California Court of Appeal for the Second District on January 20, 2006, upheld the use of class action waivers in the employment context. The second opinion, Jones v. Citigroup, Inc., handed down by the Fourth District, followed less than a week later on January 26, 2006, sanctioned the use of class action waivers as between credit card issuers and their customers.
In Gentry, the Court ruled that an employee of Circuit City could not maintain a class action arbitration where the employee had been given a period of 30 days to opt out of the class action waiver agreement without penalty, but took no action. The Court emphasized the fact that the arbitration and class action waiver procedures were spelled out clearly and the employee was given ample opportunity to reject them. As such, the employee could not argue, after the fact, that the arbitration and class action waiver provisions were unconscionable. The Court ruled that where an employee has an adequate opportunity to reject a class action waiver, it will most likely be enforceable as long as agreeing to it was not a condition of employment.
The Jones Court used similar reasoning in upholding Citibank's class action waiver procedure. Citibank cardholders had received a notice with their credit card bills advising that any claims against the company would be subject to arbitration on an individual, non-class basis. The notice clearly allowed any cardholder to opt out of the arbitration agreement and class action waiver and to continue using the card as before. The plaintiffs in Jones did not opt out of the agreement. Since the procedures implemented contained a fair opt out provision and were not presented on a "take it or leave it" basis, the claims against Citibank were subject to individual, non-class arbitration.
The Court of Appeal rulings in both Gentry and in Jones carefully distinguished the waiver procedures used by Circuit City and Citibank, respectively, from those used by the defendant in Discover Bank v. Superior Court, wherein on June 27, 2005, the California Supreme Court ruled that Discover Bank's "take it or leave it" class action waiver agreement with its cardholders was unconscionable, both procedurally and substantively.
What is clear now in California is that the enforceability of a class action waiver depends on how it is implemented. The Gentry and Jones Courts each held that where an employee or consumer has an adequate opportunity to reject a class action waiver, and it is not a condition of employment or card use, it will most likely be enforceable. Although Jones was decided outside the employment context, it bolsters the holding in Gentry. These opinions provide guidance to California employers and businesses operating in California with regard to their exposure to class action claims and prolonged, expensive litigation.
If you have any questions about this Alert or would like more information about drafting and implementing arbitration agreements and class action waivers, please contact Eve I. Klein of the Duane Morris Employment & Immigration Practice Group.
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