In Gentry v. Superior Court, 42 Cal. 4th 443, 450 (2007) ("Gentry"), the California Supreme Court held that class arbitration waivers in employment agreements may not be enforced to preclude class arbitration to pursue overtime claims if the trial court determines that class arbitration would be a significantly more effective than individual arbitration at vindicating rights. This holding effectively terminated California employers' ability to preclude class and representative actions in wage and hour cases through the use of class and representative action arbitration waivers and arbitration agreements. In reaching its decision, the Gentry court relied heavily on the reasoning in Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), where the California Supreme Court held that class action waivers in consumer arbitration agreements were unconscionable in certain circumstances (the "Discover Bank" rule).
In April 2011, the Supreme Court of the United States, in deciding AT&T Mobility LLC v. Concepcion, ____ U.S. ___ 131 S. Ct. 1740 (2011) ("AT&T"), held that the Discover Bank rule was preempted by the Federal Arbitration Act ("FAA"). The AT&T opinion was extremely broad in its reasoning and, from its language, it appeared that the California Supreme Court's decision in Gentry would no longer be valid, thus paving the way for employers to implement arbitration agreements and class and representative action arbitration waivers that would, on a going forward basis, substantially reduce their exposure to these claims in California.
On July 12, 2011, however, the California Court of Appeal decided Brown v. Ralphs Grocery Company, 197 Cal.App.4th 489, 128 Cal.Rptr.3d 854 (2011) ("Brown"), and – in a two to one decision – held that the AT&T holding does not apply to representative actions under the California Private Attorney General Act of 2004 ("PAGA"). The appeals court remanded the case so the trial court could apply the Gentry factors to determine whether the arbitration agreement and class action waivers were enforceable. Also, the appeals court stated it would not "have to determine whether, under AT&T – the rule in Gentry – concerning the invalidity of class action waivers in an employee-employer contract arbitration clause is preempted by the FAA." Brown, 128 Cal.Rptr.3d at 859.
Although it agreed with the majority that "Gentry remains the binding law of this state which we must follow," the dissent in Brown stated that "Gentry's continuing vitality is in doubt after the decision in AT&T," and flatly disagreed with the holding that the plaintiff could not waive a right to bring a representative action under PAGA, citing a string of U.S. Supreme Court decisions that found California statutory and decisional law that impedes contractual arbitration agreements to be preempted by the FAA. Brown, 128 Cal.Rptr.3d at 865. The dissent adopted the reasoning of a U.S. District Court decision in Quevedo v Macy's Inc., 2011 WL 313502 (C.D. Cal 2011), which was issued approximately one month before Brown, and concluded that AT&T compelled the plaintiff's waiver of representative PAGA claims and the right to arbitrate class wage claims under the arbitration agreement and waiver at issue. Id. at 868.
Since Brown was decided, one U.S. District Court has refused to follow Brown's holding on the PAGA issue (Nelson v AT&T Mobility, 2011 WL 3651153 (N.D. Cal. 2011)), and one has followed it (Plows v Rockwell Collins, Inc., 2011 WL 3501872 (C.D. Cal. 2011)). On August 23, 2011, the defendant in Brown filed a Petition for Review with the California Supreme Court, so the prospect of further guidance is on the horizon. Until then, it remains uncertain whether or to what extent arbitration agreements and arbitration waivers will be effective in defending class and representative actions in California.