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Class Action Defense Cases–Franco v. Athens Disposal: California State Court Reverses Order In Labor Law Class Action Compelling Plaintiff To Arbitrate Individual Claims Holding Class Action Waiver Unconscionable

In Labor Law Class Action, Trial Court Erred in Granting Defense Petition to Compel Plaintiff to Arbitrate his Claims on an Individual Basis because Class Action Waiver in Arbitration Agreement Signed by Employee was Unconscionable California State Court Holds

Plaintiff, a trash truck driver, filed a putative class action against his former employer, Athens Disposal, alleging labor law violations; the class action complaint asserted that Athens denied its employees meal and rest periods. Franco v. Athens Disposal Co., Inc., 171 Cal.App.4th 1277 (Cal.App. 2009) [Slip Opn., at 2]. According to the allegations underlying the class action, Athens failed to pay its employees overtime, and failed to provide meal periods or to pay employees an additional hour of compensation for each workday that they missed a meal period. Id., at 3. Defense attorneys moved to dismiss the class action complaint and to compel arbitration based on the terms of the employment agreement with plaintiff, id., at 2. The employment agreement contained an arbitration clause as well as a provision waiving class action relief or the right to bring an action in “a private attorney general capacity.” Id. Plaintiff countered that the class action waiver was unconscionable, id. The trial court disagreed and granted Athens’ motion to compel plaintiff to proceed with arbitration on an individual basis. Id. The California Court of Appeal reversed, concluding that the class action arbitration wavier was unconscionable “given ‘the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights.’” Id. (quoting Gentry v. Superior Court, 42 Cal.4th 443, 463 (Cal. 2007)). The appellate court further held that the arbitration clause was unconscionable in that it sought to prevent plaintiff from serving as a private attorney general, it conflict with California’s Private Attorneys General Act of 2004 (PAGA). Id.

In its petition to compel arbitration and to dismiss the class action, Athens argued that the arbitration agreement was governed by the Federal Arbitration Act (FAA). Franco, at 3-4. Indeed, the employment agreement expressly provided that it was governed by the FAA, and that any arbitration would be conducted under the employment arbitration rules of the American Arbitration Association (AAA). Id., at 4. The petition to compel arbitration was simplicity itself: “Under the FAA, arbitration was mandatory.” Id. Plaintiff argued that the class action waiver was invalid under Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005), which defense counsel sought to distinguish. Id., at 4-5. The trial court agreed that Discover Bank did not cover employment cases and granted the motion to compel. Id., at 5. Plaintiff sought reconsideration based on Gentry, which the trial court denied based in part on its conclusion that plaintiff’s meal and rest period claims were not suitable for class action treatment because of the specific inquiries that would be required of the various claims. See id., at 5-7.

The Court of Appeal noted that plaintiff had the burden of proving that the arbitration agreement was not enforceable. Franco, at 8. It also addressed various “preliminary issues” which we do not here discuss, see id., at 8-11. After explaining that Gentry applied not only to the overtime claims there at issue, but to meal and rest period claims, id., at 11, and after discussing an employee’s “unwaivable statutory right” to meal and rest periods, see id., at 11-16, the appellate court turned to the specific factors discussed in Gentry – the likely recovery versus the cost of litigating an individual claim, the possible risk of retaliation in bringing a claim against the employer, the likelihood that putative class members may be unaware that their legal rights may have been violated, and the use of the class action mechanism as a means of “assur[ing] the effective enforcement of statutory policies even though some claims are large enough to provide an incentive for individual action” – and concluded that the factors supported class action treatment of the claims at issue. See id., at 16-22. Accordingly, the Court of Appeal reversed the order compelling plaintiff to arbitrate his individual claims, and ordered the trial court to return the class action to the civil active list, id., at 28.

NOTE: We do not here discuss the appellate court’s discussion of plaintiff’s right to serve as a private attorney general. See Franco, at 22-27.

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