California's Gentry Rule Under Challenge

by FordHarrison
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Executive Summary:  The U.S. Supreme Court has vacated the decision of a California state court, which held that a trial court should apply the factors set out in the California Supreme Court's 2007 decision in Gentry v. Superior Court to determine whether a pre-employment arbitration agreement containing a class-action waiver is enforceable.  The U.S. Supreme Court remanded the case to the state court for further consideration in light of the Supreme Court's decision in American Express Co. v. Italian Colors Restaurant (2013).  See CarMax Auto Superstores California v. Fowler, No. 13-439 (February 24, 2014).                   

In the lower court case, the California Court of Appeals, Second Appellate District, held that the analysis set forth in Gentry  survived the U.S. Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S. 2011), because the Court in Concepcion did not address a situation involving an employee's unwaivable statutory rights.  See Fowler v. CarMax, Inc., 2013 Cal. App. Unpub. LEXIS 2159 (March 26, 2013).  In Gentry, the California Supreme Court held that a class action waiver may be unenforceable in certain circumstances when it performs as an exculpatory clause.  The court in Gentry further held that if the trial court concludes that a class action "is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer's violations, it must invalidate the class arbitration waiver to ensure that these employees can "vindicate [their] unwaivable rights . . ."  The court rejected the employer's argument that Gentry was inapplicable in light of the U.S. Supreme Court's decision in Concepcion, and remanded the case to the trial court to apply the Gentry factors to determine whether the motion to compel arbitration should be granted or denied.  The California Supreme Court refused to review the decision.

The employer sought U.S. Supreme Court review of the case, asking the Court to address the issue of whether California's "Gentry rule" is preempted by the Federal Arbitration Act in light of the Supreme Court's decisions in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant.  The Supreme Court granted certiorari and remanded the case for further consideration in light of American Express Co. v. Italian Colors Restaurant

Thus, the California state court will have another opportunity to consider the enforceability of the arbitration agreement and must, in accordance with the Supreme Court's order, consider the impact of the Court's ruling in American Express. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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