Class Action Waivers Okayed for Employment Disputes

Following a mandate from the U.S. Supreme Court, the Massachusetts Supreme Judicial Court (SJC) has held that a contractual waiver of class action claims in an employment dispute must be enforced. The plaintiffs in the ongoing case are franchisees who claim they serve as employees of the defendants but are misclassified in order to deny them wages and benefits. They seek repayment of tens of thousands in franchise fees along with damages under the Massachusetts Wage Act, a statute that mandates the tripling of all damage awards.

The plaintiffs hoped to obtain class certification, a move that would allow them to join all similarly situated franchisees in their litigation, thus threatening the defendants with multi-million dollar damages. Class action suits are intended to make litigation feasible for individuals who suffer relatively small damages but are part of large groups of people suffering from similar alleged wrongs. As part of their franchise agreements, however, the plaintiffs agreed to mandatory arbitration of all disputes on individual bases. A lower court refused to enforce the arbitration clause and class action waiver, citing Massachusetts public policy. In reversing, the SJC followed  Supreme Court decision holding that class action waivers are enforceable. The SJC concluded that, unless a waiver effectively deprives a plaintiff of the ability to redress complaints, it must be enforced.

“The Supreme Court in [AT & T Mobility LLC v. Concepcion] has declared that the inherent conflict between arbitration and class proceedings must be resolved in favor of arbitration, as long as a class waiver does not operate to deny a plaintiff any meaningful remedy,” the SJC wrote. Because each plaintiff sought repayment of franchise fees of between $9,000 and $22,000, they could pursue their individual claims without forming a class of plaintiffs. “Although the magnitude of potential damages is not the sole criterion to be considered in determining whether a claim is remediable in individual arbitration according to the terms of the arbitration agreement, it may be the most important factor,” the court wrote.

The SJC case is Machado v. System4 LLC. It was decided June 12, 2013. While the decision upheld the class action waiver/arbitration clause, the court also concluded that a waiver of the mandatory tripling of damages in the Massachusetts Wage Act was void as contrary to public policy. The plaintiffs in Machado, then can obtain triple damages and payment of their legal fees by the defendants if they establish they were employees who were denied wage payments under the Act. This they must do in individual arbitration proceedings.