On January 19, 2006, the Second Appellate District of the California Court of Appeal decided the case of Gentry v. Superior Court (January 19, 2006). The issue before the Gentry Court was whether a class action waiver in a pre-employment arbitration agreement is enforceable under California law.
In Gentry, the plaintiff employee, Robert Gentry, was employed by Circuit City Stores, Inc. In 1995, while employed by Circuit City, Gentry received a copy of Circuit City’s arbitration agreement containing a class action waiver. Pursuant to Circuit City’s dispute resolution rules and procedures, employees were provided with 30 days to opt out of the arbitration agreement. Gentry did not do so.
On August 29, 2002, Gentry brought a class action suit against Circuit City alleging that he and other similarly situated customer service managers had been “illegally misclassified” as exempt employees. On February 28, 2003, Circuit City’s petition to compel arbitration was granted by the trial court. On September 9, 2003, Gentry filed a petition for writ of mandate seeking to reverse the order to arbitrate.
At the time Gentry filed his mandate petition, the issue of whether a class action waiver is enforceable under California law was before the California Supreme Court in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005). In Discover Bank, the Supreme Court analyzed the class action waiver issue under general principles of unconscionability and held that “at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable.” It was against this backdrop that the Second Appellate District of the California Court of Appeal evaluated the class action waiver in Gentry.
The Gentry Court first noted that the doctrine of unconscionability entails procedural and substantive elements which must both be present for a contract or provision to be deemed unenforceable. The Court explained that “the procedural element of an unconscionable contract generally takes the form of a contract of adhesion, which imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” The Court then defined a substantively unconscionable contract as having “unfairly one-sided” terms.
The Court determined that the class action waiver in the Circuit City arbitration agreement was not procedurally unconscionable and, therefore, was enforceable. The Court reasoned that the arbitration agreement was not procedurally unconscionable because it “does not have that adhesive element . . . . Signing the arbitration agreement was not made a condition of Gentry’s employment; he was given 30 days to decide whether or not to opt out of the agreement, and chose not to do so.” The Court further noted that since the arbitration agreement lacked any other indicia of procedural unconscionability because it was “clearly spelled out” in writing and by video and employees were encouraged to contact Circuit City representatives and/or to consult an attorney prior to deciding whether to agree.
Moreover, the Gentry Court found that the class action waiver was not substantively unconscionable because Circuit City’s arbitration agreement is not a “consumer contract of adhesion in a setting which disputes between the contracting parties predictably involve small amounts of damages.” Therefore, unlike the class action waiver in the Discover Bank case, the Circuit City waiver did not become “in practice the exemption of the party from responsibility for [its] own fraud, or willful injury to the person or property of another.” (internal quotations omitted)
Thus, the Second Appellate District of the California Court of Appeal concluded that a class action waiver in a pre-employment arbitration agreement is valid and enforceable when the agreement is not unconscionable. As a result, the Court denied Gentry’s petition for writ of mandate.