Originally from World Arbitration And Mediation Review (WAMR)

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THE SUPREME COURT OF CALIFORNIA ASSERTS THAT PROCEDURAL UNCONSCIONABILITYWARRANTS JUDICIAL SCRUTINY TO DETERMINE SUBSTANTIVE UNCONSCIONABILITY

In Gentry v. Superior Court,1 the Supreme Court of California broke
new ground in arbitration law by concluding that class arbitration waivers in
employment arbitration agreements may undermine an employee’s
unwaivable statutory rights and frustrate the enforcement of California’s
overtime payment laws. Accordingly, the Court held that such waivers
should not be enforced if class arbitration is found to be more effective than
individual arbitration in serving said rights. The Court also ruled that, if an
arbitration agreement is deemed procedurally unconscionable, a reviewing
court must scrutinize the agreement to determine if it is substantively
unconscionable and, therefore, unenforceable. Circuit City hired Robert
Gentry (“Gentry”) in 1995, at which time he received an “Associate Issue
Resolution Package” along with a copy of Circuit City’s “Dispute
Resolution Rules and Procedures.”2 The latter included an agreement to
arbitrate, which contained, among other limitations, a class arbitration
waiver. Gentry also received a form that allowed employees thirty days to
opt out of the arbitration provision. He did not elect to do so and
subsequently filed a class action lawsuit against Circuit City on behalf of
salaried customer service managers like himself in August 2002. Gentry
alleged that Circuit City had illegally misclassified them as exempt
employees not entitled to overtime pay. When Circuit City moved to
compel arbitration, the lower court severed two, substantively
unconscionable provisions from the arbitration agreement and ordered
Gentry to abide by the remainder of the agreement, including the class
arbitration waiver. The lower court also stayed the action while Gentry
arbitrated his claims on an individual basis.