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Agreement’s class action waiver can’t be enforced

Arbitration provision in violation of NLRA

0721_c_YOUNGA class-action waiver in a mandatory arbitration agreement between a Domino’s Pizza franchisee and its employees could not be enforced against delivery drivers asserting wage and tip law violations, a U.S. District Court judge has ruled.

The plaintiff was a delivery driver who claimed in a putative class action that a “delivery charge” imposed on customers was in fact a “service charge” that the defendant franchisee illegally withheld from him and other drivers.

He argued that the waiver interfered with employees’ right to engage in protected concerted activity under Section 7 of the National Labor Relations Act, even though the arbitration agreement had an opt-out provision.

Judge William G. Young agreed, granting the plaintiff’s motion for class certification and denying the defendants’ motion to dismiss.

“What are the class actions before the Court, if not employees ‘band[ing]’ together as a class, in ‘confronting’ their employer ‘regarding the terms … of their employment?’” Young wrote, quoting the NLRA.

He went on to say that the National Labor Relations Board’s interpretation of Section 7  “— that these agreements, even with opt-out provisions, ‘burden’ the exercise of Section 7 rights, and unlawfully ‘require … employees to prospectively waive their Section 7 right to engage in concerted activity…’ — is a reasonable one, in light of the statute’s text and purpose.”

The 53-page decision is Tigges v. AM Pizza, Inc., et al.; Reeves v. PMLRA Pizza, Inc., et al.

In Container Store case, clause deemed unconscionable, illusory
A recent finding by a U.S. magistrate judge, subsequently adopted by a U.S. District Court judge, calls into question certain mandatory arbitration agreements in the consumer context.

In National Federation for the Blind, et al. v. The Container Store, Inc. (Lawyers Weekly No. 05-041-16), a class of visually impaired customers claimed a retail chain violated the Americans with Disabilities Act by utilizing touch-screen devices at the point of sale, preventing them from completing transactions requiring a PIN number without verbally providing personal information to store personnel.

The retailer in question, the Container Store, moved to compel arbitration, citing an arbitration provision that the plaintiffs allegedly agreed to by participating in the chain’s customer loyalty program.

But U.S. Magistrate Judge M. Page Kelley recommended that the motion be denied, finding that the agreement was unconscionable since the terms and conditions for the loyalty program were presented on a visual display that blind people could not access.

Additionally, Kelley said the provision was illusory because the Container Store maintained the unilateral right to modify its terms.

Late last month, U.S. District Judge Nathaniel M. Gorton adopted Kelley’s recommendation.

“In order for plaintiffs to have ratified the agreement, they must have taken some action that, at the very least, indicated their awareness of the general nature of the agreement,” Gorton wrote. “Participating in a loyalty program by returning an item without a receipt or redeeming a discount coupon does not establish such an awareness.”

Plaintiffs’ counsel Jeremy Y. Weltman of Worcester said the decision is an important one for consumers.

“The court is saying you can’t just throw things up on a screen and expect it to bind people or take away their right to have their issues heard in a court of law,” he said.

The case has even broader applicability since the court is reaffirming that arbitration agreements are unenforceable when one side retains the right to unilaterally change its terms, Weltman said.

“You don’t have to be blind to make that argument,” he said.

The Container Store’s lead attorney, Michael J. Chilleen of Costa Mesa, California, could not be reached for comment prior to deadline.

‘Positive development’

Plaintiffs’ counsel Stephen S. Churchill of Boston declined to comment due to the ongoing nature of the case.

But Nicholas F. Ortiz, who represents employees in wage and hour class actions, called the ruling a “positive development.”

To have a local judge take the side of employees in a nationwide debate over the enforceability of class-action waivers in the employment context is critical, Ortiz said.

“Seeing class actions as a way that employees exercise the key right to collective action that’s longstanding in American history is extremely important,” the Boston lawyer said. “The hope of plaintiffs’ counsel like myself is that ultimately the national debate in the courts will come out in employees’ favor, and the Federal Arbitration Act won’t be used as an extraordinarily powerful trump to these other key rights that consumers and employees have.”

Shannon Liss-Riordan, a Boston lawyer who also represents workers in class actions, said the U.S. Supreme Court eventually will have to address the matter, given the split between the 7th U.S. Circuit Court of Appeals and other circuits on whether clauses like the one at issue should be enforced.

When that happens, Liss-Riordan said, hopefully the court will not expand its recent decisions upholding the enforceability of class-action waivers in the consumer context to cover employment cases.

“The employment context raises different issues from the consumer and antitrust contexts, and it is evident that employees who depend on their employers for their livelihoods will feel more pressure to accept arbitration agreements,” she said.

Cambridge attorney Eric R. LeBlanc, who represented the defendants, said his client is considering an appeal.

He noted that an essentially identical claim was made against Domino’s in Minnesota and that the 8th Circuit overturned a federal judge’s certification of the class in its 2011 Luiken, et al. v. Domino’s Pizza LLC decision.

Additionally, he said, the franchisee in the case before Judge Young went through a full “exemplar” trial in October on the merits of similar claims brought by a different driver, and the jury found for LeBlanc’s client on all counts.

“The mere idea that the delivery driver who went through the exemplar trial and lost could now potentially be a member of the class [in this case] because — according to Judge Young’s opinion — he’s exactly in the same position as [the plaintiff], doesn’t line up,” LeBlanc said.

Michael Mankes, a Boston lawyer who represents employers, said not only is Young’s decision at odds with the majority of decisions across the country, it goes even further than those rulings that have found class-action waivers unenforceable.

“Judge Young ruled that even if there’s an opt-out provision, [class-action waivers] are unlawful,” he said, noting that a recent federal District Court decision from Ohio and a 9th Circuit ruling both contradict Young’s decision.

Meanwhile, Young’s ruling could put Massachusetts employers in a tough spot, Mankes said.

“Whenever the law is in flux like it is here, it’s difficult for an employer to know what’s permitted and what’s not permitted,” he said.

Mankes said he would still recommend mandatory arbitration provisions because they give both employer and employee a quicker, less costly avenue to get disputes resolved. But he added that employers would have to “think harder” about including class-action waivers. And employers who do include them should also incorporate a severability provision so that if a waiver is ruled invalid, it will not void the entire arbitration agreement, he said.

Class-action waiver

Plaintiff Tylor Reeves was employed as a delivery driver for defendant PMLRA Pizza, Inc., which owns a number of Domino’s Pizza franchises, and its president, defendant Henry Askew, from 2008 to 2013.

The employer presented some of its employees, including Reeves, with a contract under which any dispute with the employer would be handled through individual arbitration. The arbitration agreement also barred class actions against the employer.

The agreement did, however, contain a provision that allowed employees to opt out of the agreement by doing so in writing within 30 days of signing it. The provision contained language that promised employees they would not suffer retaliation for opting out, but also reminded them that they remained “at-will” employees.

Reeves, like other drivers, received a “tipped minimum wage.” In other words, he received less than the hourly minimum wage, supplemented by tips.

Meanwhile, the employer imposed a delivery charge on customers ranging between $1.99 and $2.99. Customers were told of the delivery charge by disclosures on the Domino’s website, its smartphone app and on the pizza boxes themselves.

Information about each order was recorded on Domino’s information systems and included the date and time of each order, the amount, the delivery driver, and the amount of any delivery charge and/or credit card tips.

Beginning in 2013, a series of drivers started filing putative class actions against the defendants alleging that the defendants’ failure to pay their drivers the full amount of the “delivery charge” violated the state Minimum Wage Act and Section 152A of the Tips Act. A number of prior claims settled.

Reeves filed his claim on Jan. 7, 2016, and in March moved for class certification for all drivers who worked for his employer at any time since the end of 2010.

The employer moved to dismiss, citing the arbitration agreement with the class-action waiver.

Michael Mankes, a Boston lawyer who represents employers, said not only is Young’s decision at odds with the majority of decisions across the country, it goes even further than those rulings that have found class-action waivers unenforceable.

‘Achilles’ heel’

Addressing the defendants’ motion, Young suggested that the arbitration agreement would have been valid if not for the class-action waiver provision, which he described as its “Achilles’ heel.”

Specifically, Young rejected the defendants’ argument that the FAA mandated enforcement of the arbitration agreement, including the class-action waiver.

“The FAA does not place arbitration agreements on a ‘pedestal’ on which all other legal rights are to be sacrificed,” the judge said, quoting the Supreme Court’s 2002 decision in E.E.O.C. v. Wafffle House, Inc. “[R]ather, the FAA merely ensures that arbitration agreements — which, at the time of the FAA’s enactment, were subject to ‘longstanding judicial hostility,’ — are placed on an ‘equal footing’ with contracts.”

Here, enforcing the arbitration agreement and its class-action waiver would infringe on a substantive federal right — the right to engage in concerted activity as protected by Section 7 — and the FAA does not require a court to enforce an illegal agreement, Young said.

The judge further found that the opt-out provision did not save the waiver, citing the NLRB’s prior decisions that class-action waivers in the employment context, even with opt-out provisions, still violate Section 7.

Accordingly, Young denied the defendants’ motion to dismiss and allowed the plaintiff’s motion for class certification.


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