New class action arbitration decision: Konig v. U-Haul Co.

Yesterday, in Konig v. U-Haul Co., ___ Cal.App.4th ___ (Dec. 19, 2006), the Court of Appeal (Second Appellate District, Division Five), held 2-1 that a "no class action" abitration provision in an employment contract was enforceable under Discover Bank v. Superior Court, 36 Cal.4th 148 (2005). The majority's reasoning hinged on the potential size of the class members' claims:

Here, plaintiff failed to establish “predictably . . . small amounts” of damages payable to class members are at issue as required under the Discover Bank test. Thus, plaintiff failed to sustain his burden of proving substantive unconscionability. The complaint in this case alleges defendant has engaged in a scheme to defraud its employees out of overtime compensation. Plaintiff presented no evidence in the trial court the potential damages and penalties payable to class members would be “predictably . . . small.” Thus, plaintiff failed to establish that the class action waiver was substantively unconscionable under the Discover Bank test. In the absence of any evidence the potential damages payable to class members would be predictably small, the trial court reasonably could have found plaintiff failed to sustain his burden of proving the class action waiver was procedurally unconscionable.

Slip op. at 11. The dissenting justice disagreed with this analysis:

The plaintiff employee here alleged that he and other similarly-situated employees were covered by the Labor Code and California Industrial Welfare Commission orders, and asserted a claim for damages for various Labor Code violations, including damages and penalties for overtime compensation, waiting time, and failures to provide required rest breaks. He further alleged that the members of the proposed class have “relatively small claims.” The damages for the members of the class that have been employed for short periods of time would be especially small.

....

Although the damage amounts in employment cases may not be as small as the damage amounts in some consumer class actions, generally the amounts are still relatively small. As a result, the employee in a case such as this one is at a severe disadvantage vis-à-vis the employer in connection with pursuing a claim against the employer.

Slip op. at 2-3 (footnote omitted) (Mosk, J., dissenting). The dissent goes on:

If the waiver of class actions in employment cases such as this one is validated, such waivers likely will be included in all employment manuals and policies applicable to employees. Employee class actions would become rare. As a result, employees and the courts would be deprived of the beneficial effects of class actions for employee-employer disputes. Accordingly, I would reverse the judgment.

Id. at 5. The Supreme Court has expressed a lot of interest in "no class action" arbitration cases lately, and has granted review in several. I could see the Court taking this case up as well.

UPDATE: Wage Law has this interesting post on the Konig decision.