The First Appellate District of the Court of Appeal has followed the California Supreme Court’s recent Gentry opinion finding a class action waiver unconscionable and therefore unenforceable.  In Murphy v. Check ‘N Go Of California, Inc. (which has been certified for publication), the appellate court upheld an order denying the employer’s attempt to compel arbitration of a wage and hour case.  Relying on Gentry v. Superior Court (2007) 42 Cal. 4th 443, the Murphy Court concluded that (1) the court, rather than the arbitrator, is empowered to decide the unconscionability issue and (2) the class action waiver contained in the arbitration agreement is unconscionable and therefore unenforceable.

In Murphy, plaintiff signed a Dispute Resolution Agreement which all of defendant’s employees received as part of their regular office mailings.  All employees had to sign the agreement, and no one explained to them that they had the option to revise the agreement or opt-out of it.  The Agreement included language which expressly stated that covered claims subject to mandatory arbitration include “any assertion by you or us that this Agreement is substantively or procedurally unconscionable,” and “any pre-existing or present claim that you or we actually assert or could assert against each other.”  The Agreement also provided that neither the employer nor the employee could maintain a lawsuit in court and that neither could participate in a class or representative action or otherwise consolidate with the claims of others.  Finally, the Agreement stated that the “arbitration firm may not arbitrate a Covered Claim as a class action or a representative action. . .”  Taken together, this Agreement prevents employees from maintaining a class action or representative action against the company, in court or in arbitration.

As a threshold matter, and despite the express language providing that assertions of unconscionability would be determined by an arbitrator, the Court ruled the provision is unconscionable because it is contained in a contract of adhesion.  Plaintiff was required to sign the contract as a condition of continued employment, and language permitting employees to consult with an independent attorney, without more, did not compel a contrary finding.

More significantly, the Court ruled that the class action waiver contained in the Dispute Resolution Agreement is unconscionable and therefore unenforceable.  The Court stated that the class action waiver is “patently one-sided.”  It expressly approved the trial court’s reliance on Discover Bank v. Superior Court (2005) 36 Cal. 4th 148 (which struck down a class action waiver in the consumer context which exempted defendant from responsibility because a class action would be the only effective way to halt and redress the alleged violations).  Gentry v. Superior Court confirmed Discover Bank’s reasoning was not confined to consumer actions and extended the rationale to wage and hour cases where a class action waiver could likewise be “exculpatory in practical terms because it can make it very difficult for those injured by unlawful conduct to pursue a legal remedy.”  Gentry, 42 Cal. 4th at 457.  The Murphy Court, in following Gentry, held the class action waiver provision unenforceable.

Finally, the Court refused to sever the unconscionable portions of the Dispute Resolution Agreement and enforce the remainder of that agreement.  The Court found that the Agreement is “permeated” by unconscionability because it contained at least two unconscionable provisions.  The Court distinguished Gentry which seemed to suggest that the unconscionable provision can be severed.  In Gentry, the arbitration agreement contained only a single term in violation of public policy.  Here, because of the multiple unconscionable terms, the Court used its discretion to refuse to enforce any part of the Agreement.