Many thanks to Kelly Chen, a recent graduate of U.C. Hastings Law School, who attended the Gentry argument yesterday and wrote up this detailed report:
(NOTE: I observed the argument from a staff lounge on a 28” tv with a room full of about 40 people. It was quite difficult to “see” anything. Although I could distinguish the voices amongst the female justices, I was unable to differentiate the voices of the male justices.)
This afternoon in Los Angeles, the California Supreme Court heard oral argument regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California's wage and hour laws. Michael Rubin and Cliff Palefsky argued on behalf of the employees. Rex Berry argued for Circuit City.
Mr. Rubin started by pointing to the exculpatory purpose and effect of class action bans in employment cases. He argued that such a class action ban is inconsistent with the policy underlying Labor Code section 923, which provided that employees shall be free from employers' interference in “concerted activities” for the purpose of “mutual aid and protection.”
Justice Kennard quickly jumped in and asked: “Would this court take into consideration the relatively small awards in wage and hour cases?” She then cited the statistical average of $6,000 in individual wage claims. Mr. Rubin indicated that in overtime claims where the statute of limitation is running, some workers in a class might have begun work at the end of the claim period.
One of the male justices (not Moreno) then asked: “Would you say that the public policy in favor of class actions should trump the public policy in favor of arbitration?” Mr. Rubin indicated that he would not characterize it that way. He explained that Gentry’s position actually furthers the public policy regarding arbitration -- that is, a “fair” policy of arbitration. He argued that employers can not have an arbitration policy that undermines the policy of a fair arbitration.
Another male justice (Moreno I think) then interjected by saying that this case is not like Discover Bank where the contract of adhesion was sent in stuffed mails. Mr. Rubin responded by arguing that there is still a procedural unconscionability issue here, because this case involved a scenario where employees were asked to “take it or leave it.” Rubin explained that the nature of the work environment itself is inherently oppressive.
At this time, Justice Kennard interjected and asked about the employment handbook. Mr. Rubin said that the employment handbook indicated the oppressive nature of the agreement, given that Circuit City retained the right to unilaterally change the terms of the agreement. “That goes beyond the reasonable expectations of the employees,” Mr. Rubin argued. Mr. Rubin articulated that certain special provisions just cannot be "buried" in the handbook, including things like a class action bar, the unilateral change of the terms, and the reduction of the statute of limitations. He argued that these special provisions must be explained in a “pre-dispute” scenario.
One of the male justices (Baxter or George) then asked if it is Mr. Rubin’s opinion that his client's claims cannot be adequately adjudicated through a Berman hearing? Mr. Rubin indicated that individual claimants in a Berman hearing have to pay for attorneys fees; he then focused on his class action argument. The Justice commented that isn’t it the purpose of the Berman hearing that the employees can represent themselves in these wage claims without representation. The Justice did not seem eager to hear the class action argument. Rather, the Justice pursued his original inquiry and asked Rubin: “What’s wrong with the Berman hearing process? Or arbitration?”
At this time, Mr. Rubin’s time was up. Mr. Rubin quickly answered the questions. With the Berman hearing, Mr. Rubin pointed to the limited resources and attorneys fees as two problems. I wish Mr. Rubin had had a little bit more time to discuss the inadequacy of the Berman process in a more comprehensive manner.
Mr. Palefsky argued also on behalf of the employees.
I missed the beginning of Mr. Palefsky’s presentation and the first question posed by Justice Corrigan.
A male justice (George, Chin, or Baxter) asked a hypothetical of whether it would make a difference if the plaintiff is an employment specialist working at a law firm who is capable of understanding the terms of the employment agreement. Mr. Palefsky responded in the negative. Mr. Palefsky’s position was that employers just can’t prohibit class actions.
Justice Moreno then asked if Circuit City gave up its rights in any way in the agreement. Mr. Palefsky firmly responded: “No!” Mr. Palefsky then argued that that if one has to waive his right to a jury, etc… you can’t do it in a document with a title “Receipt.”
Justice Kennard eagerly interjected: “Is it your view that class action waiver is always invalid? Or is it a case by case analysis?” Mr. Palefsky answered that class action bars (in this context) are always invalid. He, like Mr. Rubin, cited Labor Code section 923. At one point, Mr. Palefsky used the phrase “in a wage case” during his response to Justice Kennard’s question. Upon hearing the phrase, Justice Kennard commented: “ah….you just said the magic term! It is this case!” Mr. Palefsky then used “in an employment case” when he moved on to explain the pre-dispute waiver in this case (and how it shouldn’t be allowed).
Justice Werdgar then asked whether the particularity of this case is irrelevant (i.e., whether the fact that the relevant provisions were buried in the handbook?). Mr. Palefsky indicated that the particularity of this case tells us the importance of a clear cut rule. He argued that we just can’t open the door to a class action bar with an opt-out process; hence, there must be a clear cut rule.
Justice Werdgar then followed up by asking about Gentry’s options to resolve his dispute: “If he had opted out, what are you saying it will happen to him?” Mr. Palefsky went on with his argument, but the justices interrupted and asked him to directly answer the question. “Retaliation!” Mr. Palefsky responded.
At this time, Mr. Berry argued on behalf of Circuit City. He started out by arguing that there are two flaws to Gentry’s arguments. First, he pointed to what’s on the record -- the agreement. One of the male justices (George I think) then interjected and asked about the “voluntariness” of the context of the agreement -- whether it is a contract of adhesion. Berry responded: “absolutely not… if he (i.e., Gentry) felt coerced, I suppose he could put a declaration before the Superior Court…but he did not.”
Justice Werdgar asked: “We’ve been told that Labor Code section 923 prohibits class action waivers. Is that correct?” Berry responded in the negative and argued that assertion is a stretch.
Berry then moved on and focused his arguments on the pro-arbitration public policy.
Justice Werdgar then commented that the opposing counsels focused on the class action part, not arbitration part. She asked: “Are we not talking about class action waivers?”
Berry then argued that Gentry is asking this court to render the agreement unenforceable because there was a class action waiver. He argued that this is not a commercial contract of adhesion. He indicated that employees were given a presentation about the terms of the agreement and an opportunity to opt out. At this time, one of the male justices added: “didn’t they go beyond and advise…the employees to counsel with attorneys?” (I really couldn’t “see” which of the male justices said this.)
Justice Chin (I think) then said that he sees this as a tension between class action policy verses the arbitration policy. He asked if they are both legislative policies? Berry said that the policy concerning arbitration is a legislation policy, but the policy concerning class actions is a “judicial” policy. Justice Kennard then quickly pointed out that the policy concerning overtime wages is a legislative concern. She said: “why are we in dangerous territory? I think we’re simply looking at whether a class waiver is okay. I think everyone will agree that arbitration is favored. But legislature also concerns overtime…etc…”
Justice Kennard then asked Berry to articulate what is (and what is not) in the employment handbook. She specifically asked for examples like: (i) the reduction of the statute of limitation from four to one year, and (ii) the restriction of backpay to one year. Berry didn’t address Kennard’s question directly. Instead, he talked about the presentation to the employees and how even till now no one else indicated to them what they should have said to the employees. Kennard interjected and asked Berry to respond to the question posed. Berry said “yes” and indicated that the employees signed a receipt, etc.
Justice Moreno then asked Berry to address to the issue regarding reciprocity of the contractual terms, specifically whether Circuit City gave up some rights? “Absolutely,” said Berry. He explained that his clients gave up appellate review (i.e., given that arbitration awards are not subject to appellate review). Also, he gave an example of how Circuit City also gave up suing its employees (i.e., something about collecting money from employees about traveling expenses -- I thought this was weak in comparison to the rights that the employees are giving up…for obvious reasons).
At this time, it’s Mr. Rubin’s turn again. Justice Kennard asked Mr. Rubin, in response to Berry’s earlier assertions, whether the employment handbook indeed expressly contained certain explanations about things like the reduction of the statute of limitations, etc? Mr. Rubin responded with confidence: “No!” He then referenced specific page numbers in the handbook. Rubin said: “It doesn’t say ‘no statute of limitation of more than 1 year’ or ‘no punitive damages.’” He then took the opportunity and went back to Justice Moreno’s question regarding reciprocity by referencing a page in the handbook which expressly bars lawsuits “brought by associates.”
One justice asked about Labor Code section 923 and how Circuit City claimed this section only applies to a collective bargaining situation. One of the male justices asked: “Is there any legislative intent you can cite that favors class action over arbitration?” Mr. Rubin once again indicated that they are not making such a distinction (see above). The Justice then asked about the term “concerted activity” in the section 923. Mr. Rubin responded by saying that federal courts have permitted people to apply the term “concerted activity” to consolidate cases.
At this time, Mr. Rubin articulated that a class action bar in pre-dispute employment cases (as in Gentry’s case) is unenforceable “if it is reasonably foreseeable that the ‘effect’ is to eliminate non-waiveable statutory claims.” I thought this point beautifully tied to his opening remark!
Justice Werdgar then asked: if this court were to agree with you….are you saying that class action arbitration is not okay?” Mr. Rubin said: “Oh, no.” Werdgar then cleared out two issues: (1) class action waiver, and (2) the arbitration agreement itself. She asked if Gentry’s first position is to strike out the entire agreement, and the second position is to allow arbitration without the class action bar. Rubin affirmed.
The next question posed at Mr. Rubin is whether a class action waiver is never enforceable. Mr. Rubin responded, again, that it is unenforceable in a pre-dispute situation in the employment context if it is reasonably foreseeable that the effect is to eliminate non-waiverable statutory claims.
As a recent law school graduate, I have to humbly admit I’m too junior to make a prediction.
Thanks, Kelly! Readers, what do you think? Feel free to post a comment based on Kelly's summary as well as the summary posted by a reader in the comments to this post. I'm hoping to receive at least one more summary later today.
