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California Supreme Court Rejects Class Action Arbitration Waiver In Employment Contract

Divided California Supreme Court Holds Class Action Arbitration Clause would “Undermine the Vindication of the Employees’ Unwaivable Statutory Rights and would Pose a Serious Obstacle to the Enforcement of the State’s Overtime Laws”

Yesterday, in a 4-3 decision with far-reaching impacts on class action arbitration waivers in California, the Supreme Court essentially held that class action waivers are unenforceable under California law. While the majority opinion claims that it is not condemning all such waivers, the dissent cogently observes that — for all intents and purposes — it is the practical effect of the decision. Even more surprising, the Supreme Court held that an arbitration clause in an employment contract was procedurally unconscionable even though the employee had been given a 30-day right to opt out of the arbitration provision without any adverse impact if the employee opposed arbitration. This aspect of the opinion is crucial, because under California law a contract is not unconscionable unless it is both procedurally and substantively unconscionable. Accordingly, if (as the trial court and appellate court held) the 30-day right to opt out of the arbitration aspect of the dispute resolution program meant that the arbitration clause was not procedurally unconscionable, then the arbitration provision would be insulated from attack. The Supreme Court found “an element of procedural unconscionability notwithstanding the opt-out provision,” and so it remanded the putative class action to the trial court for a determination of whether the arbitration clause was also substantively unconscionable.

We plan to post an article covering the Supreme Court opinion on Tuesday, September 4, following the Labor Day weekend, but a copy of the opinion may be downloaded here.