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California OKs class-action suits for unpaid overtime

Arbitration policies can't stop litigation

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The California Supreme Court ruled this week that employees who claim they've been cheated out of overtime can sue their employer, whether or not the company's arbitration policy forbids class actions.

The ruling was sparked by a 2002 suit led by a former Circuit City worker seeking overtime wages. According to The LA Times, the company made its employees sign a document waiving their right to sue the company.

The waivers required workers to follow an internal arbitration process outside of court, and limited damages to no more than one year of back pay. Circuit City work Robert Gentry claimed the policy violated California state labor laws and was therefore not legally binding.

Circuit City claims the arbitration process is often beneficial to employees — offering resolutions to disputes faster than than litigation. The company also claims employees have 30 days to opt out of the agreement, which Gentry had not done.

In a 4-3 ruling, the high court said the waivers "pose a serious obstacle to the enforcement of the state's overtime laws." The decision overturned a rejection of Gentry's claims by the appellate court.

The decision didn't ban companies from using waiver agreements in the future, but will send Gentry's case to trial court.

The decision also has the potential to open the flood gates on overtime related class-action cases in the state. Getting corporations to pony up for overtime is a particularly contentious issue for IT employees, where duty often calls outside the regular 40-hour work week. However, tech workers will still have to contend with California's Fair Labor Standards Act, which puts "white collar" exemptions on executives, administrative, professional, and many IT employees.

The decision "dashes the hopes of employers that contractual class-action waivers will be an effective tool to stem the flow of debilitating class-action litigation," Colleen Regan, the attorney representing Circuit City told The Times.

Recently, Universal Media Group was hit by a class action lawsuit from IT employees seeking unpaid overtime wages. IBM has also defending itself against a class action alleging it hasn't paid overtime to its sales workers.

In 2006, IBM paid $65m in backdated overtime to settle a lawsuit from 32,000 IT employees. ®

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