Alaska Employment Law

The California Supreme Court has identified factors that would invalidate provisions in arbitration agreements that purport to waive class claims for unpaid overtime.  Gentry v. Superior Court of Los Angeles County, S141502, ___ P.3d ___ (Cal. Aug. 30, 2007).  The Court (4-3) held that various practical difficulties facing individual OT claimants may void any agreement to waive class action arbitrations (or, equally, litigation).  The Court also held that the arbitration agreement was procedurally unconscionable.  The real party in interest was Circuit City Stores, Inc.

Waiver of Statutory Right to Overtime Compensation

A California statute makes the right to overtime unwaivable.  (Alaska does the same, through the provision that all contracts are deemed to include the statutory right to overtime.  AS 23.10.060(c).)  The issue then becomes whether permitting only individual claims effectively eliminates the right to collect OT from a noncompliant employer.  In reaching its opinion, the majority first observed some special features of OT laws that are equally applicable in Alaska.  OT laws protect not only the individual employee, but also the public, in two distinct ways: As is frequently noted, the OT premium tends to spread employment throughout the work force, and thus fosters “society’s interest in a stable job market.”  But OT also protects employees in a relatively weak bargaining position against “the evil of ‘overwork.’”  Those two public purposes support the unenforceability of an individual employee waiver of OT rights. 

Then, moving to the subject of class actions (whether in arbitration or litigation), the California court first noted that “individual awards in wage and hour cases tend to be modest.”  As evidence, the court pointed to the average OT award from the California wage & hour agency ($6,000), in contrast to the median ADEA verdict ($269,000).   The court affirmed its observation in an earlier case that even an award as large as $37,000 would be insufficient incentive for an individual lawsuit for OT.  The availability of actual attorney fees in OT litigation did not alter the court’s assessment of incentives.  Second, the court held that the possibility of employer retaliation also supports OT class actions (despite the presence of anti-retaliation statutes), as does employee ignorance of OT rights.  The court roundly rejected the availability of “small claims litigation, government prosecution, or informal resolution” as adequate substitutes for class action treatment.  In sum, in many (perhaps most) cases, the practical difficulties in prosecuting individual OT claims, whether in arbitration or litigation, support the need for class action treatment.  The Court remanded for trial court weighing of these practical factors in this particular setting. 

The spectrum of cases would seem to run from enforceable waiver (large claims by a class of sophisticated former employees) to unenforceable waiver (small claims by non-English speaking, current employees).

The court’s analysis applies only to purported waivers arising from post-dispute agreements.  Assuming conscionability of terms (see below), waivers entered into after the dispute has arisen are either valid per se, or at least more likely valid.

Procedural Unconscionability of Class Action Waiver via Opt Out

Even if the waiver of class action treatment is valid, the arbitration agreement might be unconscionable on either/both procedural or substantive grounds.  Here, the issue before the California court was whether the presence of a 30-day opt out period, coupled with notice of right to consult counsel, satisfied procedural conscionability.   The court held that the employer’s lop-sided explanation of the benefits of participating in arbitration in general (and with no reference to the disadvantages under the employer’s particular rules), coupled with the employee’s inherent bargaining disadvantage, rendered the arbitration agreement procedurally unconscionable “to some degree.”  Because California requires a finding of both substantive and procedural unconscionability before it will void a contract on unconscionability grounds, the court remanded for trial court review of substantive unconscionability grounds.

For other commenatary on Gentry, see California Employment Law; and California Wage & Hour Law.  See also earlier discussion in this blog of waiver of statutory rights.