California Court Criticizes Prior Case Law Invalidating Class Action Waivers, Then Punts To State Supreme Court

[author: Natalie A. Rainforth]

Truly Nolen of America v. Superior Court, 2012 WL 3222211 (Aug. 13, 2012) (pdf)

California law involving classwide wage-and-hour arbitration continues to evolve in the aftermath of the United States Supreme Court’s landmark decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which generally prohibits states from requiring additional due process guarantees (not required under the Federal Arbitration Act) for enforcing arbitration agreements. (See our prior blog post here.) Since Concepcion, lawyers and jurists have called into question the continuing viability of Gentry v. Superior Court – in which the California Supreme Court delineated a four-factor test for invalidating class arbitration waivers – as well as other cases subjecting employment arbitration agreements to special (employee-friendly) rules. Some courts have continued to apply Gentry while others have declared it dead, holding that “[a] rule like the one in Gentry – requiring courts to determine whether to impose class arbitration on parties who contractually rejected it – cannot be considered consistent with [Concepcion’s] objective of enforcing arbitration agreements according to their terms.” See, e.g., Iskanian v. CLS Transp. Los Angeles, LLC, 206 Cal. App. 4th 949 (2012).

In its recent decision in Truly Nolen of America v. Superior Court, the California Court of Appeal gave a nod to Iskanian and other cases invalidating Gentry, but ultimately held that in the absence of an express or implied agreement among the parties regarding class arbitration, ordering the arbitration of non-waivable employment claims on a classwide basis was “questionable” though not erroneous, since this is a narrow issue on which the California Supreme Court has not yet opined. The plaintiffs, who worked as pest control technicians for Truly Nolen of America (“Truly Nolen”),alleged on behalf of themselves and other current and former employees that they had been misclassified as exempt from California’s stringent overtime pay requirements. Truly Nolen moved to compel arbitration of the plaintiffs’ claims based on an arbitration agreement between the parties which was silent on the issue of whether class claims would be arbitrated on an individual or classwide basis. The trial court, relying on Gentry, ordered classwide arbitration, over Truly Nolen’s objections.

On appeal, the court agreed that under Concepcion, class action waivers in employment arbitration agreements should be enforced, even if class arbitration would be “more efficient” than individual arbitration. However, in an ostensible exercise of judicial restraint, the court declined “to disregard the California Supreme Court's decision” in Gentry “without specific guidance from our high court.” Indeed, since Concepcion addressed class action waivers vis-à-vis waivable consumer claims rather than unwaivable statutory claims, insofar as the court of appeal was concerned Gentry remains good law.

What is the practical impact of Truly Nolen? A California Supreme Court ruling on Gentry’s validity is perhaps one step closer, but in the interim, employees will have to satisfy a more rigorous test – “Gentry plus,” so to speak – to compel class action arbitration over their employers’ objections. The Truly Nolen court carefully circumscribed the conditions under which Gentry could be invoked, making it clear that the specific facts of each case – and not generalized statements about the benefits of classwide arbitration – must be offered to satisfy the four-factor test (requiring a small disputed monetary amount; a potential for retaliation; lack of knowledge by absent class members of their rights; and other policy reasons which prevent complete vindication of the employees’ statutory rights). The court found that the two attorney declarations submitted on behalf of the plaintiffs were devoid of facts specific to the plaintiffs and their claims, and thus failed to meet the requisite standard. Although perhaps only a limited victory for employers, Truly Nolen stands for the proposition that vague considerations of public policy may no longer suffice for employees seeking to avoid individual arbitration.