Labor law and overtime pay

California Courts of Appeal Reports

KONIG v. U-HAUL COMPANY OF CALIFORNIA, B190547 (Cal.App.
12-19-2006) RON KONIG, Plaintiff and Appellant, v. U-HAUL
COMPANY OF CALIFORNIA, Defendant and Respondent. B190547.
Court of Appeal of California, Second District, Division
Five. Filed December 19, 2006. CERTIFIED FOR PUBLICATION

Appeal from a judgment of the Superior Court of Los Angeles
County, Ct. No. BC335055, Peter D. Lichtman, Judge,
Affirmed.

Law Office of Joseph Antonelli, Joseph Antonelli and
Janelle Carney, for Plaintiff and Appellant.

Fulbright & Jaworski, James R. Evans, Jr., and Joseph H.
Park; and Mariscal, Weeks, McIntyre & Friedlander, and Gary
L. Birnbaum for Defendant and Respondent.

TURNER, P. J.

I. INTRODUCTION

This appeal raises the issue of whether a class action
waiver contained in a employment agreement between
plaintiff, Ron Konig, and his former employer defendant,
U-Haul Company of California, is enforceable under
standards set forth in Discover Bank v. Superior Court
(2005) 36 Cal.4th 148, 156-174. Plaintiff has failed to
prove this action involves “predictably . . . small amount
of damages” per class member as is his burden under
Discover Bank. We affirm the order granting defendant’s
motion to compel arbitration and dismissing plaintiff’s
class action claims.

II. BACKGROUND

On June 15, 2005, plaintiff filed a proposed class action
for unpaid wages and unfair business practices against his
former employer. The complaint, which contained five causes
of action, alleged various violations of the Labor Code and
the Business and Professions Code. The complaint alleged,
among other things, defendant failed to pay its employees
overtime and accrued vacation. With respect to the overtime
pay, paragraph 23 of the complaint alleged: “[Defendant had
a] uniform corporate policy and practice of allocating and
authorizing servicing of clientele and improperly
classifying that service as sales by defendant U-Haul. This
corporate policy and pattern of conduct was/is accomplished
with the advance knowledge and designed intent to place all
service oriented duties and tasks and classify those duties
as sales so as to call these members of the class, outside
sales persons and classify them as exempt employees. Each
and every one of the members of the class named herein who
were customarily and regularly required to discharge their
duties in the course and in excess of, forty hours in a
week and/or eight hours in a day without the appropriate
compensation.” Defendant is further alleged to have falsely
disseminated information among its employees that the
employees were not entitled to overtime compensation under
California law and defendant’s policies. The complaint
further alleged that the defendant did not allow its
employees to take meal and rest breaks. Plaintiff sought
damages on behalf of himself and defendant’s similarly
situated current and former employees. Plaintiff explicitly
alleged his claims were typical of all other class members.
At oral argument, plaintiff conceded his causes of action
would be cognizable as general jurisdiction claims. That
is, his own personal damage claim exceeds $25,000. (Code
Civ. Proc. § 86, subd. (a)(1).)

On November 7, 2005, defendant moved to compel arbitration,
to stay the action, and for dismissal of the class action
claims. Defendant argued that the claims raised in the
lawsuit are exclusively subject to final and binding
arbitration by defendant’s arbitration policy, which was
acknowledged and signed by plaintiff. The arbitration policy
is as follows: “The [U-Haul Arbitration Policy] applies to
all . . . employees, regardless of length of service or
status, and covers all disputes relating to or arising out
of an employee’s employment with [defendant] or the
termination of that employment. Examples of the types of
disputes or claims covered by the [U-Haul Arbitration
Policy] include, but are not limited to, claims for
wrongful termination of employment, breach of contract,
fraud, employment discrimination, harassment or retaliation
under the Americans With Disabilities Act, the Age
Discrimination in Employment Act, Title VII of the Civil
Rights Act of 1964 and its amendments, the California Fair
Employment and Housing Act or any other state or local
anti-discrimination laws, tort claims, wage or overtime
claims or other claims under the Labor Code, or any other
legal or equitable claims and causes of action recognized
by local, state or federal law or regulations. . . . [
¶ ] Your decision to accept employment or continue
employment with [defendant] constitutes your agreement to
be bound by the [U-Haul Arbitration Policy]. Likewise,
[defendant] agrees to be bound by the [U-Haul Arbitration
Policy]. This mutual obligation to arbitrate means that
both you and [defendant] are bound to use the [U-Haul
Arbitration Policy] as the only means of resolving any
employment related disputes. This mutual obligation to
arbitrate claims also means that both you and [defendant]
forego any right either may have to a jury trial on claims
relating in any way to your employment, and both you and
[defendant] forego and waive any right to join or
consolidate claims in arbitration with others or to make
claims in arbitration as a representative or as a member of
a class or in a private attorney general capacity, unless
such procedures are agreed to by both you and [defendant].
No remedies that otherwise would be available to you
individually or to [defendant] in a court of law, however,
will be forfeited by virtue of this agreement to use and be
bound by the [U-Haul Arbitration Policy]. The [U-Haul
Arbitration Policy] changes the forum and process for
resolving disputes, but does not change the potential legal
remedies you have. [ ¶ ] The [U-Haul Arbitration
Policy] shall be governed by the Federal Arbitration Act
(‘FAA’), 9 U.S.C. § 1 et seq. If for any reason, the
FAA is deemed inapplicable, only then will the [U-Haul
Arbitration Policy] be governed by the applicable state
arbitration statutes. The National Rules for the Resolution
of Employment Disputes of the American Arbitration
Association (‘AAA’) in place at the time of the dispute will
govern the procedures to be used in arbitration, unless you
and [defendant] agree otherwise in writing.”

The employee arbitration agreement was to be executed and
acknowledged by each employee. The employee arbitration
agreement provided in part: “I understand that final and
binding arbitration will be the sole and exclusive remedy
for any such claim or dispute against [defendant] . . . and
that, by agreeing to use arbitration to resolve my dispute,
both [defendant] and I agree to forego any right we each
may have had to a jury trial on issues covered by the
[U-Haul Arbitration Policy], and forego any right to bring
claims on a representative, class member basis, or as a
private attorney general.”

In support of the motion to compel, defendant argued that
the arbitration agreement was enforceable under the United
States Arbitration Act (9 U.S.C. § 1 et seq.) or
alternatively under the California Arbitration Act. (Code
Civ. Proc., § 1280 et seq.) In support of the
arbitration motion, defendant presented evidence that
plaintiff was hired as a general manager in April 1986 and
was subsequently promoted to the position of Area Field
Manager. Defendant asserted that plaintiff had “accepted
the written terms” [of the U-Haul Arbitration Policy] as a
“condition of his employment” in July 2003. Defendant
terminated plaintiff in July 2004. Plaintiff then filed a
complaint with the Department of Fair Employment and
Housing in which he alleged that he was terminated for
complaining about harassment and unprofessional behavior in
violation of the California Fair Employment and Housing Act.

Plaintiff opposed the motion to compel arbitration on the
grounds: he never executed the arbitration agreement; his
alleged signature on the July 2003 document was a forgery;
the standard arbitration agreement drafted by defendant is
procedurally unconscionable; and the arbitration agreement
is substantively unconscionable in that it prohibits class
actions, lacks mutuality, and requires employees to pay
fees. Plaintiff also argued that the case was controlled by
Discover Bank v. Superior Court, supra, 36 Cal.4th at pages
156-174, which concluded the United States Arbitration Act
did not preempt a finding that the arbitration provision is
unconscionable.

In reply, defendant argued plaintiff’s claims regarding his
signature lacked merit. Defendant contended that, even if
plaintiff did not sign the arbitration agreement, he
consented to its terms by electing to accept the benefits
of employment, with knowledge that it was a condition of
his continued employment. Defendant further argued:
California law does not favor class actions; Discover Bank
did not resolve issues related to employment agreements;
the arbitration agreement is not substantively
unconscionable because it satisfies the requirements of
Armendariz v. Foundation Health Psychcare Services (2000)
24 Cal.4th 83, 103-113; the arbitration agreement is mutual;
and arbitration agreements are favored in California.

At the initial hearing, the trial court requested
supplemental briefing on class action waivers in the
employment context. In the interim, on January 19, 2006, we
decided Gentry v. Superior Court (2006) 135 Cal.App.4th
944, review granted April 26, 2006, S141502. As noted, the
Supreme Court granted review of Gentry on April 26, 2006.
Earlier though, on March 24, 2006, the trial court ruled
that the arbitration agreement was enforceable under
federal law. Citing Gentry, the trial court ruled that a
class action waiver in and of itself did not render the
arbitration agreement or unconscionable. The trial court
found that plaintiff had failed to establish the
infirmities that led to Discover Bank’s conclusion that the
consumer contract waiver was substantively unconscionable.
Specifically, the trial court ruled plaintiff did not prove
that there were predictably amounts of damages plus a
negative impact on his ability to pursue his statutory
claims such that the arbitration agreement was
substantively unconscionable.

On April 14, 2006, plaintiff filed an appeal from the order
compelling arbitration and dismissing his putative class
claims. The appeal from the order compelling arbitration of
plaintiff’s individual claims is not appealable. (Code Civ.
Proc., §§ 904.1, 1294; Szetela v. Discover
Bank (2002) 97 Cal.App.4th 1094, 1097-1098.) But as to the
class certification issue, we have jurisdiction to resolve
that question. (See Richmond v. Dart Industries, Inc.
(1981) 29 Cal.4th 462, 470; Szetela v. Discover Bank,
supra, 97 Cal.App.4th at p. 1098.)

III. DISCUSSION

The arbitration agreement provides that it is governed by
the United States Arbitration Act. (9 U.S.C. § 1 et
seq.) The purpose and effect of the federal law is to
encourage the arbitration of civil disputes outside the
judicial forum. (9 U.S.C. § 1; Gilmer v.
Interstate/Johnson Lane Corporation (1991) 500 U.S. 20, 25;
Moses H. Cone Memorial Hospital v. Mercury Const. Corp.
(1983) 460 U.S. 1, 24.) There is a liberal policy in favor
of valid arbitration agreements under federal and state
law. (Gilmer v. Interstate/Johnson Lane Corporation, supra,
500 U.S. at p. 25; Code Civ. Proc., § 1281.2;
Armendariz v. Foundation Health Psychcare Services, Inc.,
supra, 24 Cal.4th at p. 97; Moncharsh v. Heily & Blase
(1992) 3 Cal.4th 1, 9.) The United States Supreme Court has
held that under federal law any doubts as to the scope of
arbitral issues should be resolved in favor of arbitration,
including questions concerning contractual interpretation,
waiver, delay, or similar defenses. (Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 626;
accord, Cronus Investments, Inc. v. Concierge Services
(2005) 35 Cal.4th 376, 384.)

Under federal law, an arbitration provision “shall be
valid, irrevocable, and enforceable” unless there is a
ground for revocation of the agreement to arbitrate such as
the defense of unconscionability. (9 U.S.C. § 2;
Perry v. Thomas (1987) 482 U.S. 483, 492-493, fn. 9;
Armendariz v. Foundation Health Psychcare Services, Inc.,
supra, 24 Cal.4th at p. 98.) State unconscionability law may
be applied to determine the validity of an arbitration
agreement. But for the application of state law
unconscionability to avoid the limited preemptive effect of
the United States Arbitration Act, it must apply to all
contracts, not merely arbitration clauses. (Doctor’s
Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-687;
Ting v. AT&T (9th Cir. 2003) 319 F.3d 1126, 1150 fn. 15;
see also Discover Bank v. Superior Court, supra, 36 Cal.4th
at pp. 153, 163-168; Engalla v. Permanente Medical Group,
Inc. (1997) 15 Cal.4th 951, 971-973; Kinney v. United
Healthcare Services, Inc. (1999) 70 Cal.App.4th 1322, 1328.)
Our Supreme Court has held that a determination of
enforceability of a class action waiver based on
unconscionabilty principles is not preempted by the United
States Arbitration Act. (Discover Bank v. Superior Court,
supra, 36 Cal.4th at pp. 153, 163-168; Klussman v. Cross
Country Bank (2005) 134 Cal.App.4th 1283, 1290; see also
Ting v. AT&T (9th Cir. 2003) 319 F.3d 1126, 1135, 1147;
contra Boomer v. AT&T (7th Cir. 2002) 309 F.3d 404,
419-420.) If there is no dispute in the evidence, we review
the arbitration agreement de novo to determine if it is
unconscionable. (Independent Assn. of Mailbox Center Owners,
Inc. v. Superior Court (2005) 133 Cal.App.4th 396, 405;
Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522,
1527; McManus v. CIBC World Markets Corp. (2003) 109
Cal.App.4th 76, 86; Mercuro v. Superior Court (2002) 96
Cal.App.4th 167, 174.)

Unconscionability has both a procedural and a substantive
element. (Discover Bank v. Superior Court, supra, 36
Cal.4th at p. 160; Little v. Auto Stiegler, Inc. (2003) 29
Cal.4th 1064, 1071; Armendariz v. Foundation Health
Psychcare Services, supra, 24 Cal.4th at p. 114; Kinney v.
United Healthcare Services, supra, 70 Cal.App.4th at p.
1329; Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th
1519, 1530-1533.) In order to invalidate a contractual
provision because it is unconscionable, generally both
procedural and substantive unconscionability must be
present. (Armendariz v. Foundation Health Psychcare
Services, supra, 24 Cal.4th at p. 114; Klussman v. Cross
Country Bank, supra, 134 Cal.App.4th at p. 1295.) However,
there need not be equal degrees of both procedural and
substantive unconscionability present. Our Supreme Court
has adopted a sliding scale analysis. The greater the
showing a contract term is procedurally unconscionable, the
less evidence need be presented of substantive
unconscionability and vice versa. (Armendariz v. Foundation
Health Psychcare Services, supra, 24 Cal.4th at p. 114;
Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th
1305, 1317.) The burden rests with plaintiff to prove that
the class action waiver is both procedurally and
substantively unconscionable. (Engalla v. Permanente Medical
Group, Inc., supra, 15 Cal.4th at p. 972, 982; Crippen v.
Central Valley RV Outlet, Inc. (2004) 124 Cal.App.4th 1159,
1164.)

Procedural unconscionability occurs when there is
“oppression” arising from an inequality of bargaining power
or “surprise” from buried terms in a complex printed form.
(Armendariz v. Foundation Health Psychcare Services, supra,
24 Cal.4th at p. 114; Mercuro v. Superior Court, supra, 96
Cal.App.4th at p. 174.) A preemployment arbitration
agreement can be a contract that is procedurally
unconscionable. (Little v. Auto Stiegler, Inc. 29 Cal.4th
at p. 1071; Armendariz v. Foundation Health Psychcare
Services, supra, 24 Cal.4th at pp. 113-127.) In this case,
the class action waiver is contained in an arbitration
agreement imposed as a condition of employment. As a
condition of employment, an employee is required to waive
any right to pursue a class action. Because it is a
condition of employment, there is no opt out provision and
no real provision to negotiate its terms. (See Aral v.
Earthlink, Inc. (2005) 134 Cal.App.4th 544, 557 [no
opportunity to opt out “is quintessential procedural
unconscionability”]; Szetela v. Discover Bank, supra, 97
Cal.App.4th at p. 1100 [when weaker party is told to take
it or leave it without a meaningful opportunity
negotiation, procedural unconscionability is present.].)
Defendant’s arbitration clause is imposed as a condition of
employment and is thus procedurally unconscionable.

As to the second aspect of unconscionability law, the
substantive element addresses the existence of overly-harsh
or one-sided terms. (Discover Bank v. Superior Court,
supra, 36 Cal.4th at p. 160; Armendariz v. Foundation
Health Psychcare Services, supra, 24 Cal.4th at p. 114.) In
Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at pages
1071-1072, the Supreme Court explained, “Substantively
unconscionable terms may take various forms, but may
generally be described as unfairly one-sided.” (See
Jaramillo v. JH Real Estate Partners, Inc. (2003) 111
Cal.App.4th 394, 401.)

In Discover Bank v. Superior Court, supra, 36 Cal.4th at
pages 160-161, the Supreme Court explained how a class
action waiver in a consumer agreement may be substantively
unconscionable: “We agree that at least some class action
waivers in consumer contracts are unconscionable under
California law. First, when a consumer is given an
amendment to its cardholder agreement in the form of a `bill
stuffer’ that he would be deemed to accept if he did not
close his account, an element of procedural
unconscionability is present. (Szetela, supra, 97
Cal.App.4th at p. 1100.) Moreover, although adhesive
contracts are generally enforced (Graham v. Scissor-Tail,
Inc. (1981) 28 Cal.3d 807, 817-818), class action waivers
found in such contracts may also be substantively
unconscionable inasmuch as they may operate effectively as
exculpatory contract clauses that are contrary to public
policy. As stated in Civil Code section 1668: `All
contracts which have for their object, directly or
indirectly, to exempt anyone from responsibility for his
own fraud, or willful injury to the person or property of
another, or violation of law, whether willful or negligent,
are against the policy of the law.’ (Italics added.) [
¶ ] Class action and arbitration waivers are not, in
the abstract, exculpatory clauses. But because, as
discussed above, damages in consumer cases are often small
and because `”[a] company which wrongfully exacts a dollar
from each of millions of customers will reap a handsome
profit”‘ (Linder [v. Thrifty Oil Co. (2000) 23 Cal.4th
429,] 446 ), “`the class action is often the only effective
way to halt and redress such exploitation.”‘ (Ibid.)
Moreover, such class action or arbitration waivers are
indisputably one-sided. `Although styled as a mutual
prohibition on representative or class actions, it is
difficult to envision the circumstances under which the
provision might negatively impact Discover [Bank], because
credit card companies typically do not sue their customers
in class action lawsuits.’ (Szetela, supra, 97 Cal.App.4th
at p. 1101.) Such one-sided, exculpatory contracts in a
contract of adhesion, at least to the extent they operate
to insulate a party from liability that otherwise would be
imposed under California law, are generally unconscionable.”

In Discover Bank, the Supreme Court identified the
circumstances where a consumer agreement can be
substantively unconscionable: “We do not hold that all
class action waivers are necessarily unconscionable. But
when the waiver is found in a consumer contract of adhesion
in a setting in which disputes between the contracting
parties predictably involve small amounts of damages, and
when it is alleged that the party with the superior
bargaining power has carried out a scheme to deliberately
cheat large numbers of consumers out of individually small
sums of money, then, at least to the extent the obligation
at issue is governed by California law, the waiver becomes
in practice the exemption of the party `from responsibility
for [its] own fraud, or willful injury to the person or
property of another.’ (Civ. Code, § 1668.) Under
these circumstances, such waivers are unconscionable under
California law and should not be enforced.'” (Discover Bank
v. Superior Court, supra, 36 Cal.4th at pp. 162-163.)
Plaintiff asserts the foregoing Discover Bank test for
unconscionability of a class action waiver in an
arbitration clause applies to this case. Defendant is
correct that this case does not involve a consumer contract
as was the case in Discover Bank. But the aforementioned
unconscionability provisions, which find their statutory
basis in Civil Code section 1670.5, apply to all contracts
including arbitration clauses in employment and other
agreements. (McManus v. CIBC World Markets Corp., supra,
109 Cal.App.4th at pp. 86-92; Kinney v. United Health Care
Services, Inc., supra, 70 Cal.App.4th at p. 1328.) We need
not decide the exact applicability of the Discover Bank
test to this case. Nonetheless, we assume for purposes of
argument that as plaintiff contends the Discover Bank
“predictably . . . small amounts of damages” element
applies to an unconscionability claim arising in the
employment context.

Here, plaintiff failed to establish “predictably . . .
small amounts” of damages payable to class members are at
issue as required under the Discover Bank test. Thus,
plaintiff failed to sustain his burden of proving
substantive unconscionability. The complaint in this case
alleges defendant has engaged in a scheme to defraud its
employees out of overtime compensation. Plaintiff presented
no evidence in the trial court the potential damages and
penalties payable to class members would be “predictably .
. . small.” Thus, plaintiff failed to establish that the
class action waiver was substantively unconscionable under
the Discover Bank test. In the absence of any evidence the
potential damages payable to class members would be
predictably small, the trial court reasonably could have
found plaintiff failed to sustain his burden of proving the
class action waiver was procedurally unconscionable. As
noted, plaintiff’s causes of action, which are typical of
the other class members, are general jurisdiction claims.

For the first time on appeal, plaintiff cites to
statistical data set forth in the United States Department
of Labor website in an effort to prove small amounts of
damages and penalties are at issue. Plaintiff refers to
statistical data which indicates that the Wage and Hour
Division of the labor department collected $212,537,544 in
back wages for employees in fiscal year 2003. These back
wages were collected for 342,358 employees. According to
plaintiff, this averages a back wage award of $620.80 per
aggrieved employee. Thus, plaintiff reasons the average
recovery of $620.80 meets the predictably small test for
substantive unconscionability adopted in Discover Bank.
However, this evidence was never presented to the trial
court. Hence, as defendant correctly notes, the United
States Department of Labor statistics may not be relied
upon for the first time on appeal. (Crippen v. Central
Valley RV Outlet, Inc., supra, 124 Cal.App.4th at p. 1167,
fn. 1; Resolution Trust Corp. v. Winslow (1992) 9
Cal.App.4th 1799, 1810.)

Moreover, there is no apparent correlation between the
cited federal back wage figures and the allegations in
plaintiff’s complaint. For example, plaintiff’s first cause
of action alleges: he was regularly denied meal and rest
breaks; this was pursuant to a “consistent and uniform
policy”; and, as a result, he is entitled to unpaid
compensation, penalties, and attorney fees. Plaintiff seeks
Labor Code section 558 penalties[fn1] which consist of $50
for the first violation and $100 for each subsequent
failure to pay legally required compensation. If defendant
in fact has a uniform policy of denying meal and rest
breaks, in one month alone, the penalties payable to
plaintiff would exceed $1,000. In plaintiff’s Business and
Professions Code section 17200 cause of action, he is
seeking compensation and penalties for the four years
preceding June 15, 2005, the filing date of the complaint.
Plaintiff’s complaint alleges his claims are typical of
those of other class members. Multiplied over months and
years, the claims of plaintiff and other class members
according to the complaint do not involve “predictably . .
. small amounts of damages” within the meaning of Discover
Bank. Hence, the Department of Labor statistics relied upon
by plaintiff for the first time on appeal have no
relationship to the extensive damage and penalty awards he
and other potential class members are seeking.

IV. DISPOSITION

The order compelling arbitration is affirmed. Defendant,
U-Haul Company of California is entitled to its costs on
appeal from plaintiff, Ron Konig.

I concur: KRIEGLER, J.

[fn1] Labor Code section 558 states: “(a) Any employer or
other person acting on behalf of an employer who violates,
or causes to be violated, a section of this chapter or any
provision regulating hours and days of work in any order of
the Industrial Welfare Commission shall be subject to a
civil penalty as follows: [ ¶ ] (1) For any initial
violation, fifty dollars ($50) for each underpaid employee
for each pay period for which the employee was underpaid in
addition to an amount sufficient to recover underpaid
wages. [ ¶ ] (2) For each subsequent violation, one
hundred dollars ($100) for each underpaid employee for each
pay period for which the employee was underpaid in addition
to an amount sufficient to recover underpaid wages. [
¶ ] (3) Wages recovered pursuant to this section
shall be paid to the affected employee. [ ¶ ] (b) If
upon inspection or investigation the Labor Commissioner
determines that a person had paid or caused to be paid a
wage for overtime work in violation of any provision of
this chapter, or any provision regulating hours and days of
work in any order of the Industrial Welfare Commission, the
Labor Commissioner may issue a citation. The procedures for
issuing, contesting, and enforcing judgments for citations
or civil penalties issued by the Labor Commissioner for a
violation of this chapter shall be the same as those set
out in Section 1197.1. [ ¶ ] (c) The civil penalties
provided for in this section are in addition to any other
civil or criminal penalty provided by law.”

MOSK, Dissenting

I dissent.

There is no meaningful distinction between the nature and
effect of class action waivers by consumers and of class
action waivers by employees who, as the plaintiff employee
here, do not have negotiated employment contracts.

“As a general proposition, class actions are favored in
California.” (Howard Gunty Profit Sharing Plan v. Superior
Court (2001) 88 Cal.App.4th 572, 578.) The California
Supreme Court stated, “‘Modern society seems increasingly
to expose men to . . . group injuries for which
individually they are in a poor position to seek legal
redress, either because they do not know enough or because
such redress is disproportionately expensive. If each is
left to assert his rights alone if and when he can, there
will at best be a random and fragmentary enforcement, if
there is any at all. This result is not only unfortunate in
the particular case, but it will operate seriously to impair
the deterrent effect of the sanctions which underlie much
contemporary law. The problem of fashioning an effective
and inclusive group remedy is thus a major one.’ (Kalven
and Rosenfield, Function of Class Suit (1941) 8
U.Chi.L.Rev. 684, 686.)” (Vasquez v. Superior Court (1971)
4 Cal.3d 800, 807.)

In Discover Bank v. Superior Court (2005) 36 Cal.4th 148,
162-163, the California Supreme Court again recognized the
strong policy favoring the class action procedure, holding
that “when the [class action] waiver is found in a consumer
contract of adhesion in a setting in which disputes between
the contracting parties predictably involve small amounts
of damages, and when it is alleged that the party with the
superior bargaining power has carried out a scheme to
deliberately cheat large numbers of consumers out of
individually small sums of money, then, at least to the
extent the obligation at issue is governed by California
law, the waiver becomes in practice the exemption of the
party `from responsibility for [its] own fraud, or willful
injury to the person or property of another.’ [Citation.]
Under these circumstances, such waivers are unconscionable
under California law and should not be enforced.”

These same considerations are applicable to class actions
by employees, as persuasively articulated by the court in
Skirchak v. Dynamics Research Corporation, Inc. (D. Mass.
2006) 432 F.Supp.2d 175. “An arbitration agreement that
eliminates the right to a class-wide proceeding may have
`the “substantial” effect of contravening the principle
behind class action policies and “chilling the effective
protection of interests common to a group[.]”‘” (Id. at p.
181, quoting Ingle v. Circuit City Stores, Inc. (9th Cir.
2003) 328 F.3d 1165, 1176, fn. 13.) “Requiring employees
prospectively to waive their statutory rights to sue in
order to obtain or maintain their employment is utterly
inconsistent with the [Fair Labor Standards Act’s] purpose
of protecting the class of employees that possesses the
least bargaining power in the workforce: `the unprotected,
unorganized and lowest paid of the nation’s working
population.’ [Citation.] In this case, the imposition of a
waiver of class actions may effectively prevent [employees]
from seeking redress of FLSA violations. The class action
provision thereby circumscribes the legal options of these
employees, who may be unable to incur the expense of
individually pursuing their claims. In this respect, the
class action waiver is not only unfair to [employees], but
also removes any incentive for [employers] to avoid the type
of conduct that might lead to class action litigation in
the first instance. The class action clause is therefore
substantively unconscionable.” (Ibid.)

The plaintiff employee here alleged that he and other
similarly-situated employees were covered by the Labor Code
and California Industrial Welfare Commission orders, and
asserted a claim for damages for various Labor Code
violations, including damages and penalties for overtime
compensation, waiting time, and failures to provide
required rest breaks. He further alleged that the members of
the proposed class have “relatively small claims.” The
damages for the members of the class that have been
employed for short periods of time would be especially
small.

The California Supreme Court said that in determining
whether a class should be certified, the amount of the
damages or “impracticality of bringing an individual action
for comparatively small potential recovery [is] a
consideration in favor of permitting a class action. . . .
[T]he amount prayed for . . . does not per se render a
class action inappropriate.” (Collins v. Rocha (1972) 7
Cal.3d 232, 238.) “The ultimate question . . . is whether,
given an ascertainable class, the issues which may be
jointly tried, when compared with those requiring separate
adjudication, are so numerous or substantial that the
maintenance of a class action would be advantageous to the
judicial process and to the litigants.” (Ibid.; see Bell v.
Farmers Ins. Exchange (2004) 115 Cal.App.4th 715, 744-745
(Bell) [average claim of $37,394 did not preclude class
certification].) “Moreover, class actions may be needed to
assure the effective enforcement of statutory policies even
though some claims are large enough to provide an incentive
for individual action. While employees may succeed under
favorable circumstances in recovering unpaid overtime
through a lawsuit or a wage claim filed with the Labor
Commissioner, a class action may still be justified if
these alternatives offer no more than the prospect of
`random and fragmentary enforcement’ of the employer’s legal
obligation to pay overtime. (Vasquez v. Superior Court,
supra, 4 Cal.3d 800, 807.)” (Bell, supra, 115 Cal.App.4th
at p. 745.) These considerations for class certification
are also relevant to the question of unconscionability.
They can provide a better standard for determining
unconscionability than just the amount of potential
damages.

Although the damage amounts in employment cases may not be
as small as the damage amounts in some consumer class
actions, generally the amounts are still relatively
small.[fn1] As a result, the employee in a case such as
this one is at a severe disadvantage vis-a-vis the employer
in connection with pursuing a claim against the employer.

The court in Bell, supra, 115 Cal.App.4th 715, described
some of the hurdles faced by employees in connection with
overtime claims: “[The employer] maintains that where
claims are as large as $37,000, the right to recover
attorney fees, costs, and interest provides `ample
incentive’ for an individual lawsuit. But the size of the
average claim in part reflects the accrual of unpaid
overtime over the five-year duration of this lawsuit prior
to trial. When the complaint was first filed in October
1996, the average claim would have been smaller and a large
portion of the claims may not have been reasonably adequate
to fund the expense of individual litigation. The length of
this litigation in fact underscores the practical
difficulties vindicating claims to unpaid overtime.
Employees will seldom have detailed personal records of
hours worked. Their case ordinarily rests on the
credibility of vague recollections and requires them to
litigate complex overtime formulas and exemption standards.
For current employees, a lawsuit means challenging an
employer in a context that may be perceived as jeopardizing
job security and prospects for promotion. If the employee
files after termination of employment, the costs of
litigation may still involve travel expenses and time off
from work to pursue the case, and the value of any ultimate
recovery may be reduced by legal expenses.” (Id. at p.
745.)

For employees to assert their rights through individual
claims, the remedy available to each individual employee
would have to be sufficient to attract adequate legal
representation. Many employees would have difficulty
obtaining such representation. For example, short-term
employees would certainly have such difficulties. Faced with
such obstacles, many employees would not be able, as a
practical matter, to commence a proceeding against their
employer. As in a consumer case, a class action waiver
would effectively immunize the employer from at least some
of the civil consequences for its wrongful activity. Thus,
the rationale for holding class action waivers in consumer
contracts unconscionable also applies to the employee
contracts involved here.

The California Supreme Court has indicated its solicitude
for employees subject to arbitration clauses by applying
the doctrine of unconscionability to protect employee
rights. (See Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 118.) Moreover, the
California Supreme Court has invalidated pre-dispute
waivers of certain procedural rights in the absence of
express statutory authorization for such waivers. (See
Grafton Partners v. Superior Court (2005) 36 Cal.4th 944
[invalidated pre-dispute jury waivers].) There is no
legislative authorization for predispute waivers of
statutorily created class action procedures. (Code Civ.
Proc., § 382.) These principles, although not
directly applicable, should be considered as factors in
determining unconscionability in this case.

If the waiver of class actions in employment cases such as
this one is validated, such waivers likely will be included
in all employment manuals and policies applicable to
employees. Employee class actions would become rare. As a
result, employees and the courts would be deprived of the
beneficial effects of class actions for employee-employer
disputes. Accordingly, I would reverse the judgment.

[fn1] A California “small claims” court has jurisdiction
over claims by natural persons of up to $7,500 (Code Civ.
Proc., § 116.221.) “Limited civil cases” are those
in which the demand, exclusive of interest, is for $25,000
or less. (Code Civ. Proc., § 86, subd. (a)(1).)