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SJC-11681

EDSON TELES MACHADO & others

1 vs. SYSTEM4 LLC & another.2

Norfolk. December 4, 2014. - April 13, 2015.

Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, & 

Hines, JJ.

Massachusetts Wage Act. Contract, Franchise agreement, 

Arbitration. Arbitration, Damages, Arbitrable question.

Civil action commenced in the Superior Court Department on 

March 24, 2010.

Following review by this court, 465 Mass. 508 and 466 Mass. 

1004 (2013), a motion for a ruling that an arbitration clause 

did not apply to certain claims was heard by Patrick F. Brady, 

J.

The Supreme Judicial Court granted an application for 

direct appellate review.

Eric H. Karp for the defendants.

Shannon Liss-Riordan for the plaintiffs.

 

1 Jocilene da Silva, Stenio Ferreira, Poliane Santos, 

Glaucea de Oliveira Santos, and Luiz Santos.

2 NECCS, Inc., doing business as System4 of Boston, LLC 

(NECCS).
2

CORDY, J. This case was filed in 2010 by a franchisee 

janitorial worker, on behalf of himself and other similarly 

situated individuals, against System4 LLC (System4), a "master 

franchisor," and NECCS, Inc., doing business as System4 of 

Boston, LLC (NECCS), a regional "subfranchisor," originally 

alleging, in relevant part, breach of contract, rescission of 

contract, and misclassification as independent contractors in 

their franchise agreements.

3 The franchise agreements are signed 

only by the plaintiffs and NECCS; however, the complaint as 

originally filed, and as subsequently amended, does not 

differentiate NECCS from System4 and alleges that the former is 

"the agent of" and "exists solely to conduct [the] business" of 

the latter. The agreements govern a franchisee's right to 

customer account referrals and the use of System4's proprietary 

information in operating commercial janitorial cleaning 

businesses. They also require the franchisee plaintiffs to 

arbitrate virtually all disputes.

While the plaintiffs raise a number of arguments on appeal, 

of central importance is the question whether System4, a 

nonsignatory, can compel the franchisee plaintiffs to arbitrate 

 

3 Edson Teles Machado, Jocilene da Silva, Poliane Santos, 

and Luiz Santos (collectively, franchisee plaintiffs) are 

parties to agreements to operate System4 LLC (System4)

franchises. Two other plaintiffs, Stenio Ferreira and Glaucea 

de Olivera Santos, have not signed franchise agreements and 

appear to be employees of the franchisee plaintiffs.
3

their substantive claims in accord with the arbitration 

provision in the plaintiffs' franchise agreements. We conclude 

that by reason of equitable estoppel they can do so in the 

circumstances of this case.

Background. System4, an Ohio limited liability company, 

contracts with a regional subfranchisor in the Boston area, 

NECCS, who subsequently enters into franchise agreements with 

franchisees, such as the plaintiffs.4 Although System4 is not a 

signatory to these agreements, the agreements provide the 

franchisees with access to System4's marketing expertise, 

business practices, training, and use of trademarks, by way of a 

separate agreement between System4 and NECCS.

1. Arbitration clause. The franchisee plaintiffs are 

parties to agreements to operate System4 franchises (franchise 

agreements). Under these agreements, NECCS offers its 

franchisees customer accounts to service, which the franchisees 

are free either to accept or refuse. The agreements purport to 

guarantee gross monthly billings to the franchisees based on the 

value of the customer accounts offered to them. In addition, 

the agreements authorize the franchisees to use System4's 

proprietary information, including its brand and trademarks. 

 

4 The subfranchisor of System4 used to be System4 of Boston, 

LLC (System4 of Boston), but in March, 2008, NECCS purchased 

System4 of Boston and assumed all of its rights under the 

franchise agreements. Consequently, we will refer to NECCS, 

rather than System4 of Boston, throughout this opinion.
4

The agreements characterize the franchisees as independent 

contractors, a characterization they contest, and each agreement 

contains an arbitration clause.

The arbitration clause is broad in scope, requiring

arbitration of any claims between the franchisee and NECCS and 

its subsidiaries, affiliates, shareholders, officers, directors, 

managers, representatives, and employees, arising out of or 

related to:

(1) the franchise agreement or any other agreement between 

the parties, including claims related to the validity of the 

franchise agreement or any other agreement;

(2) NECCS's relationship with the franchisee; or

(3) claims relating to the operation of the franchised 

business.

Accordingly, virtually all claims arising out of the franchise 

relationship are subject to arbitration.5

2. Plaintiffs as franchisees. Machado, the original named 

plaintiff in this action, signed a franchise agreement with 

NECCS on February 14, 2008, initialing each page. After signing 

his franchise agreement, Machado both rejected and accepted 

offers extended to him by NECCS to service customer accounts. 

In October, 2008, Machado informed NECCS that he wished to sell 

 

5 The only types of claims not subject to the arbitration 

clause are those by NECCS involving a threat or danger to public 

health or safety in connection with the operation of a 

franchise, actions by NECCS to protect its trademarks, and 

actions by either NECCS or the franchisee to obtain a temporary 

restraining order or injunction.
5

his franchise, and he stopped performing services for his 

accounts. In November, 2008, Machado spoke with the president 

of NECCS, Jonathan Caffrey, and asked for his franchisee fees

back. When Caffrey declined to return the fees, Machado ceased 

communication with NECCS.

3. Procedural history. Machado filed a complaint in the 

Superior Court in March, 2010, on behalf of himself and "other 

similarly situated individuals." In so doing, Machado named 

both System4 and NECCS as defendants, and claimed that both had 

committed a breach of the franchise agreement by not providing 

him with sufficient customer accounts. In addition, Machado 

claimed that both defendants misclassified him as an independent 

contractor in the agreement and committed other violations of 

the Massachusetts Wage Act, G. L. c. 149 §§ 148, 148B, and 150

(Wage Act).

In June, 2010, the defendants, citing the arbitration 

clause in Machado's franchise agreement, filed a motion to stay 

the court proceedings pending arbitration. A judge denied the 

motion, holding that the arbitration agreement was unenforceable 

because it contained waivers of class proceedings and multiple 

damages. Subsequently, in April, 2011, the United States 

Supreme Court held in AT&T Mobility LLC v. Concepcion, 131 

S. Ct. 1740 (2011) (Concepcion), that the Federal Arbitration 

Act, 9 U.S.C. §§ 1 et seq. (2012) (FAA), prohibits States from 
6

conditioning the enforceability of arbitration agreements on the 

availability of class action procedures.

Thereafter, Machado amended his complaint, adding

additional named plaintiffs as well as a putative class6 of 

individuals who had performed cleaning services for NECCS and 

System4. The amended complaint again asserted claims against 

both defendants without differentiation, seeking rescission of 

the franchise agreements and damages for misclassification among

other violations of the Wage Act.7

In December, 2011, the defendants moved for reconsideration 

of the denial of their motion to compel arbitration in light of 

Concepcion. The judge denied the defendants' motion, and the 

defendants petitioned for interlocutory review. A single 

justice of the Appeals Court referred the issue to a full panel 

of the Appeals Court, and we granted the plaintiffs' application 

for direct appellate review. The appellate filings of both the 

plaintiffs and the defendants in that interlocutory appeal

addressed the enforceability of the arbitration clause as a 

whole and made no argument as to whether the arbitration clause, 

 

6 A motion for class certification has yet to be filed.

7 The amended complaint did not contain a breach of contract 

claim, although it alleged that the defendants made numerous 

misrepresentations in connection with the franchise agreements, 

including that they would provide the plaintiffs with business 

leads and make prompt payments as promised in their agreements.
7

if enforceable, would require arbitration of the plaintiffs' 

claims only against NECCS and not System4.

We issued a decision in June, 2013, but stayed issuance of 

the rescript until August, 1, 2013, pending submissions by the 

parties on the effect, if any, of the United States Supreme 

Court's decision in American Express Co. v. Italian Colors 

Restaurant, 133 S. Ct. 2304 (2013). See Machado v. System4 LLC, 

465 Mass. 508 (2013) (Machado I). In light of the decisions of 

the United States Supreme Court, we concluded that a class 

action waiver provision was not an adequate ground on which to 

invalidate an agreement to arbitrate. See Machado v. System4 

LLC, 466 Mass. 1004, 1004 (2013) (Machado II). See also Machado 

I, supra at 513-517. We then remanded the case to the Superior 

Court judge for proceedings consistent with our decision. See 

Machado II, supra.

Subsequently, the plaintiffs filed a motion, as well as a 

posthearing letter, again asking the judge to deny the 

defendants' motion to compel arbitration on several grounds: 

first, that the arbitration clause could not apply to their Wage 

Act claims because it did not specifically reference the Wage 

Act, an argument that was based on our decision in Crocker v. 

Townsend Oil Co., 464 Mass. 1, 14 (2012) (holding that release 

of claims must specifically reference Wage Act in order to apply 
8

to Wage Act claims);

8 second, that the arbitration clause was 

unenforceable, as it contained multiple unconscionable 

provisions; and third, that the plaintiffs were not bound to 

arbitrate their claims against System4 because it was not a 

signatory to the franchise agreements. The judge rejected the 

plaintiffs' Wage Act claim and also held that issues of

unconscionability of the arbitration clause could be decided by 

an arbitrator. However, the judge agreed with the plaintiffs

that, because System4 was not a signatory to the franchise 

agreements, the plaintiffs could proceed to litigate their 

claims against System4 in court.

System4 appealed the judge's decision regarding the 

enforceability of the arbitration clause as applied to it. The 

plaintiffs did not file a cross appeal regarding the judge's 

decision denying them relief on their other grounds, but filed 

an application for direct appellate review, which we granted. 

The plaintiffs ask us to affirm the judge's reasoning in 

declining to enforce the arbitration clause with respect to 

System4 or, in the alternative, to affirm the ruling on one of 

the grounds rejected by the judge.

 

8 This argument was first presented to this court by the 

plaintiffs in July, 2013, in a postargument letter after our 

decision in Machado v. System4 LLC, 465 Mass. 508 (2013), was 

released.
9

Discussion. Denials of applications to compel arbitration 

are reviewed de novo. See Joulé, Inc. v. Simmons, 459 Mass. 88, 

92-93 (2011); Feeney v. Dell Inc., 454 Mass. 192, 199 (2009), 

S.C., 465 Mass. 470, and 466 Mass. 1001 (2013). See also 

Warfield v. Beth Israel Deaconess Med. Ctr., Inc., 454 Mass. 

390, 395 (2009) (motion to compel arbitration treated summarily 

and judge's order reviewed de novo). The Massachusetts 

Arbitration Act, G. L. c. 251, similarly to the FAA, "expresses 

a strong public policy favoring arbitration as an expeditious 

alternative to litigation for settling commercial disputes." 

Miller v. Cotter, 448 Mass. 671, 676 (2007), quoting Home Gas 

Corp. of Mass., Inc. v. Walter's of Hadley, Inc., 403 Mass. 772, 

774 (1989). "[T]he lack of a written arbitration agreement is 

not an impediment to arbitration." Sunkist Soft Drinks, Inc. v. 

Sunkist Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993), cert. 

denied sub nom. Sunkist Growers, Inc. v. Del Monte Corp., 513 

U.S. 869 (1994).

1. Nonsignatory compulsion of signatory to arbitrate. We 

begin our discussion with a consideration of whether System4, a 

nonsignatory to the franchise agreements, can compel the 

plaintiffs to pursue their substantive claims in arbitration 

based on the agreements they entered into with NECCS.

In Depianti v. Jan-Pro Franchising Int'l, Inc., 465 Mass. 

607, 622, 624-625 (2013), we recently held that a franchisee, 
10

much like the plaintiffs in this case, could hold a nonsignatory 

to his franchise agreement liable for misclassifying him as an 

independent contractor in that agreement if the nonsignatory had 

attempted to insulate itself from liability by "causing or 

creating another entity to [enter the agreement]." This is 

essentially what the plaintiffs allege here, that is, that NECCS

was created solely to conduct System4's franchising business in 

Massachusetts; that the franchise agreements are System4's 

standard form contracts; and that System4 controls the 

relationships between the parties and between the plaintiffs and 

their clients. Therefore, they argue, System4 is just as liable 

for the misclassification in their franchise agreements as 

NECCS, even though System4 did not sign them. Although denying 

liability and an agency relationship with NECCS, System4 

essentially argues that where the plaintiffs contend that 

System4 was effectively the franchisor, the creator of the 

agreements and their terms, the violator of those terms, and the 

beneficiary of the purported misclassification term, any dispute 

arising out of the agreements should be resolved in accord with 

the arbitration clause that provides for such dispute 

resolution.

While a nonsignatory attempting to bind a signatory to an 

arbitration agreement is distinct from a signatory attempting to 

bind a nonsignatory, courts often consider both scenarios under 
11

a similar legal framework. Traditionally, courts have 

recognized six theories for binding nonsignatories to 

arbitration agreements: (1) incorporation by reference;

9 (2) 

assumption;10 (3) agency;

11 (4) veil-piercing/alter ego;12 (5) 

equitable estoppel, and (6) third-party beneficiary.13 See J.E. 

Grenig, Alternative Dispute Resolution § 7:4 (3d ed. 2005). See 

 

9 Under the "incorporation by reference" theory, "[a] 

nonsignatory may compel arbitration against a party to an 

arbitration agreement when that party has entered into a 

separate contractual relationship with the nonsignatory which 

incorporates the existing arbitration clause." Thomson-CSF, 

S.A. v. American Arbitration Ass'n, 64 F.3d 773, 777 (2d Cir. 

1995).

10 Under an "assumption" theory, "a party may be bound by an 

arbitration clause if its subsequent conduct indicates that it 

is assuming the obligation to arbitrate," despite being a 

nonsignatory. Thomson-CSF, S.A., 64 F.3d at 777.

11 Under an "agency" theory, a nonsignatory who is an agent 

of a signatory may compel arbitration for liability arising 

under the contract in question. Bridas S.A.P.I.C. v. Government 

of Turkmenistan, 345 F.3d 347, 356-358 (5th Cir. 2003), cert. 

denied, 541 U.S. 937 (2004). Here, while an agency relationship 

arguably might exist between System4 and NECCS, System4 denies 

that it "exercises sufficient control over NECCS" to create such 

a relationship.

12 Under a "veil-piercing/alter ego" theory, a party "may be 

bound by an agreement entered into by its subsidiary regardless 

of the agreement's structure or the subsidiary's attempts to 

bind itself alone to its terms, 'when their conduct demonstrates 

a virtual abandonment of separateness.'" Bridas S.A.P.I.C., 345 

F.3d at 358-359, quoting Thomson-CSF, S.A., 64 F.3d at 777. 

System4 explicitly denies having control over NECCS.

13 Under a "third-party beneficiary" theory, "a court must 

look to the intentions of the parties at the time the contract 

was executed" and examine whether the contract displays a clear 

intent to make a nonsignatory a third-party beneficiary. See 

Bridas S.A.P.I.C., 345 F.3d at 362 (citation omitted).
12

also Walker v. Collyer, 85 Mass. App. Ct. 311, 319 (2014); 

Bridas S.A.P.I.C. v. Government of Turkmenistan, 345 F.3d 347, 

356 (5th Cir. 2003), cert. denied, 541 U.S. 937 (2004). 

Notably, while Federal courts have been "hesitant to estop a 

nonsignatory seeking to avoid arbitration," they generally "have 

been willing to estop a signatory from avoiding arbitration with 

a nonsignatory." InterGen N.V. v. Grina, 344 F.3d 134, 145-146 

(1st Cir. 2003), quoting Thomson-CSF, S.A. v. American 

Arbitration Ass'n, 64 F.3d 773, 779 (2d Cir. 1995).

The theory with clearest application to the facts of this 

case is equitable estoppel, a doctrine governed by State

contract law. See Arthur Andersen LLP v. Carlisle, 556 U.S. 

624, 632 (2009). There are no reported Massachusetts appellate 

decisions determining whether this doctrine may be applied to 

extend the reach of an agreement to compel a signatory into 

arbitration with a nonsignatory. Nevertheless, we are guided in 

our analysis by several circuit courts of the United States 

Court of Appeals that have applied equitable estoppel in this 

precise context. And while "[t]he [Federal circuit courts] have 

not uniformly articulated the standards for application of 

estoppel, . . . their formulations have contained common 

elements." Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 

449 Fed. Appx. 704, 708 (10th Cir. 2011).
13

Equitable estoppel typically allows a nonsignatory to 

compel arbitration in either of two circumstances: (1) when a 

signatory "must rely on the terms of the written agreement in 

asserting its claims against the nonsignatory" or (2) when a 

signatory "raises allegations of substantially interdependent 

and concerted misconduct by both the nonsignatory and one or 

more of the signatories to the contract."14 Grigson v. Creative 

Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir.), cert. 

denied, 531 U.S. 1013 (2000), quoting MS Dealer Serv. Corp. v. 

Franklin, 177 F.3d 942, 947 (11th Cir. 1999). In such 

situations, a reviewing court may consider all of "the 

relationships of persons, wrongs and issues" in the case. 

Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 131

(2d Cir. 2003), citing Chocotaw Generation Ltd. Partnership v. 

American Home Assur. Co., 271 F.3d 403, 406 (2d Cir. 2001).

a. Reliance on terms of written agreement. When the

signatory's claims against a nonsignatory refer to or presume 

the existence of the written agreement that compels arbitration, 

the signatory’s claims may be considered to arise out of and be

 

14 Not all jurisdictions apply this test. See, e.g., Smith

v. Mark Dodge, Inc., 934 So. 2d 375, 380-381 (Ala. 2006),

quoting Ex parte Napier, 723 So. 2d 49, 51 (Ala. 1998) (court 

will consider whether arbitration may be compelled under 

equitable estoppel doctrine only if arbitration agreement is 

written in broad language so that it applies, e.g., to "[a]ll 

disputes, claims or controversies arising from or relating to 

this [c]ontract or the relationships which result from this 

[contract]").
14

directly intertwined with that agreement, rendering arbitration 

appropriate. See CD Partners, LLC v. Grizzle, 424 F.3d 795, 798 

(8th Cir. 2005). Essentially, if a party's claims are so 

intimately founded in and closely related to an agreement which 

also mandates arbitration, the party opposing arbitration is 

equitably estopped from denying the arbitrability of its claims, 

even against a nonsignatory.

15 "The plaintiff's actual 

dependence on the underlying contract in making out the claim 

against the nonsignatory defendant is therefore always the sine 

qua non of an appropriate situation for applying equitable 

estoppel." Lenox MacLaren Surgical Corp., 449 Fed. Appx. at 710

(citation omitted).

 

15 Not all jurisdictions consider the intertwining nature of 

the claims to be, on its own, a sufficient basis for equitable 

estoppel. For example, the United States Court of Appeals for 

the Second Circuit has said that while this is an essential 

prerequisite, there must also be a relationship among the 

parties of a nature that justifies a conclusion that the 

signatory should be estopped from denying an obligation to 

arbitrate a dispute with a nonsignatory. See Sokol Holdings, 

Inc. v. BMB Munai, Inc., 542 F.3d 354, 358-359 (2d Cir. 2008). 

See also Ross v. American Express Co., 547 F.3d 137, 143-144 (2d 

Cir. 2008). Echoing this sentiment, the United States Court of 

Appeals for the Tenth Circuit in Lenox MacLaren Surgical Corp., 

v. Medtronic, Inc., 449 Fed. Appx. 704, 710 (10th Cir. 2011),

held that allegations of collusion alone are insufficient; the 

claims must also be "intimately founded in and intertwined with 

the obligations imposed by the contract containing the 

arbitration clause" (citation omitted). Additionally, one 

Missouri court has held that even if claims are "inextricably 

intertwined," compelling a signatory to arbitrate with a 

nonsignatory is inconsistent with the general principle that 

arbitration is ultimately a matter of agreement between the 

parties. Jones v. Paradies, 380 S.W.3d 13, 17-18 (Mo. Ct. App. 

2012).
15

Courts frequently rule in favor of nonsignatories in such 

circumstances because "it would be unfair to allow the signatory 

to rely on the agreement in formulating its claims but to 

disavow availability of the arbitration clause of that same 

agreement." PRM Energy Sys., Inc. v. Primenergy, L.L.C., 592 

F.3d 830, 835, 836 (8th Cir. 2010) (permitting arbitration under 

equitable estoppel theory in part because allegations were 

intimately founded in and intertwined with agreement containing 

arbitration clause). See CD Partners, LLC, 424 F.3d at 800-801

(arbitration compelled where franchisee's claims arose directly 

out of and related to its operation of franchises under 

agreement containing arbitration clause).

For example, in JLM Indus., Inc. v. Stolt-Nielsen SA, 387 

F.3d 163, 177-178 (2d Cir. 2004), the court held that 

nonsignatory ship owners could compel arbitration when 

charterers alleged that the owners conspired to inflate price 

terms in contracts between the charterers' and the owners' 

subsidiaries, as these claims were "undeniably intertwined" with 

the contracts containing an arbitration clause. Additionally, 

in Grigson, 210 F.3d at 529-531, a different court held that 

allegations that nonsignatories tortiously interfered with a 

film distribution agreement containing an arbitration clause

were sufficiently intertwined with the agreement to compel 

arbitration where the very essence of the claims required a 
16

determination whether the nonsignatories had fulfilled their 

obligations under the agreement.

Similarly, here, the plaintiffs assert multiple claims that 

arise out of and relate directly to terms within the franchise 

agreements containing the arbitration clause. Contrast In re 

Wholesale Grocery Prods. Antitrust Litig., 707 F.3d 917, 921-924

(8th Cir. 2013) (no equitable estoppel where signatory alleged 

no violation of contract terms and signatory's claims existed 

independently of agreement containing arbitration clause). 

Specifically, the plaintiffs allege both that the defendants 

misclassified the plaintiffs as independent contractors in the 

agreements and used unfair and deceptive business practices that 

misrepresented the terms of their contractual relationship.

Indeed, it is the franchise agreements themselves that the 

plaintiffs allege created the service relationship between them 

and the defendants, mischaracterized the relationship as one of 

independent contractor rather than employee, and "contain[ed] 

numerous provisions that are unfair, unconscionable, [and] 

against public policy."

These claims are inextricably intertwined with and relate 

directly to the franchise agreements containing the arbitration 

provision. In particular, the plaintiffs' request for contract

rescission and allegations of unenforceability necessarily 

depend on an analysis of the terms, provisions, and warranties
17

delineated within their agreements. See Liles v. Ginn-La West 

End, Ltd., 631 F.3d 1242, 1255-1257 (11th Cir. 2011) (per 

curiam) (nonsignatory defendants could invoke forum-selection 

clause under equitable estoppel theory as plaintiffs' claim of 

rescission depended on contract containing clause); Townsend v. 

Quadrant Corp., 173 Wash. 2d 451, 461-462 (2012) (nonsignatory 

defendants could compel arbitration under equitable estoppel in 

part because plaintiffs' claim of contract rescission related 

directly to agreement containing arbitration clause). See also

Villanueva v. Barcroft, 822 F. Supp. 2d 726, 738-739 (N.D. Ohio 

2011) (forum selection clause applicable under equitable 

estoppel where plaintiff's claim relied on contract containing 

clause); World Gym, Inc. vs. Pla-Fit Franchise, LLC, U.S. Dist. 

Ct., No. 12-11620-DJC (D. Mass. July 19, 2013) (permitting 

nonsignatory to compel arbitration by way of equitable estoppel 

where plaintiffs' claims depended on provisions of franchise 

agreement that contained arbitration clause). Contrast InterGen 

N.V., 344 F.3d at 138, 140, 145-146 (no basis for equitable 

estoppel where, inter alia, complaint did not allege breach of 

contract nor sought to enforce any contractual right).

16

 

16 Moreover, as both the plaintiffs' rights and the 

responsibilities of NECCS were delineated under the franchise 

agreements, the plaintiffs inevitably rely on the terms 

contained therein when asserting the unenforceability of various 

contractual provisions.
18

As for assessing the merits of the plaintiffs' claim 

regarding misclassification, a decision maker would be compelled

to, among other things, compare the rights and responsibilities 

assigned to the plaintiffs in the franchise agreements to the 

elements of employee status under the Wage Act. Section 148B, 

commonly referred to as the independent contractor statute, 

requires an entity to demonstrate that a purported independent 

contractor is "free from control and direction in connection 

with the performance of the service, both under his contract for 

the performance of service and in fact" (emphasis added). G. L. 

c. 149, § 148B (a) (1). This statutory language directs a look 

both at the worker's agreement, if any, as well as the actual 

working relationship. See Depianti, 465 Mass. at 622; 

Subcontracting Concepts, Inc. v. Commissioner of the Div. of 

Unemployment Assistance, 86 Mass. App. Ct. 644, 649 n.7 (2014)

(addressing similar language in G. L. c. 151A, § 2). Therefore, 

courts commonly look to contractual language as a starting point 

for assessing how a worker ought to be classified. See, e.g., 

Subcontracting Concepts, Inc., supra at 647-648 (looking to 

plain terms of employment contract to assess contention that 

entity was not "employing unit" and did not require worker to 

submit to control or direction); Rogers vs. MIT Lincoln Lab., 

Mass. Superior Ct., No. 10-04587 (July 5, 2012) (in employment 

discrimination case, under G. L. c. 151B, employment and payment 
19

structure established by agreement weighed in favor of finding 

that plaintiff was independent contractor); Rainbow Dev., LLC 

vs. Department of Indus. Accs., Mass. Superior Ct., No. 2005-

00435 (Nov. 17, 2005) (examining written provisions of agreement 

to assess whether entity, despite classifying workers as 

independent contractors, asserted control over worker 

performance by way of contract).

Here, the agreement is replete with references to the 

plaintiffs' duties and responsibilities as a franchisee, and 

System4's liability, if any, could not be determined without 

reference to it. See McBro Planning & Dev. Co. v. Triangle 

Elec. Constr. Co., 741 F.2d 342, 344 (11th Cir. 1984) (signatory 

equitably estopped from asserting that lack of written agreement 

precluded arbitration where basis of claim was breach of duties 

assigned under agreement that contained arbitration clause). 

While the terms of an employment contract are not, on their own, 

dispositive, see Commissioner of the Div. of Unemployment 

Assistance v. Town Taxi of Cape Cod, Inc., 68 Mass. App. Ct. 

426, 430 n.9 (2007), the language employed may be a significant 

factor in evaluating the merits of a misclassification claim and 

making a "status determination." Boston Bicycle Couriers, Inc. 

v. Deputy Director of the Div. of Employment & Training, 56 

Mass. App. Ct. 473, 483-484 (2002). Further, any determination 

as to whether the plaintiffs have satisfied the statutory 
20

requirements of the Wage Act, and established their status as 

employees, ought to "be based upon a comprehensive analysis of 

the totality of relevant facts and circumstances of the working 

relationship." Id. at 484. While "[n]o one factor is outcomedeterminative," id., it is fair to say that an important element 

of a working relationship is the contract responsible for 

creating it.

This is not a situation in which the franchise agreement is 

merely factually significant to the plaintiffs' claims or has a 

"but-for" relationship with them. See Lenox MacLaren Surgical 

Corp., 449 Fed. Appx. at 709. Contrast VSR Fin. Servs., Inc. v. 

McLendon, 409 S.W.3d 817, 832-833 (Tex. Ct. App. 2013)

(plaintiff did not rely on terms of agreement in asserting 

claims where pleading only made reference to or presumed 

existence of agreement). Rather, the plaintiffs here must rely, 

in part, on the terms of the franchise agreements in asserting

that the provisions are unenforceable and that they were 

mischaracterized as independent contractors. The plaintiffs 

cannot avoid arbitration with System4 when the issues System4 is 

seeking to resolve in arbitration are intertwined with the 

agreements that the plaintiffs signed.

b. Concerted misconduct. The plaintiffs have consistently 

alleged concerted misconduct by System4 and NECCS. See Sanders

v. Swift Transp. Co. of Arizona, LLC, 843 F. Supp. 2d 1033, 
21

1037-1038 (N.D. Cal. 2012) (nonsignatory could compel

arbitration under equitable estoppel where concerted misconduct 

alleged between signatory and nonsignatory). In assessing 

whether a plaintiff has advanced sufficient allegations of 

concerted misconduct, courts frequently look to the face of the

complaint. See Holden v. Deloitte & Touche LLP, 390 F. Supp. 2d 

752, 768 (N.D. Ill. 2005).17

The plaintiffs have lumped the two defendants together, 

asserting each claim in their complaint against System4 and 

NECCS collectively. See Amstar Mtge. Corp. v. Indian Gold, LLC, 

517 F. Supp. 2d 889, 897 (S.D. Miss. 2007) (concerted misconduct 

prong met where action was "averred against all defendants" and 

complaint was "littered with references of substantially 

interdependent and concerted misconduct" by all defendants);

Hagan vs. GreenPoint Credit Corp., U.S. Dist. Ct., No. 07-17-KKC

(E.D. Ky. Aug. 3, 2007) (allegation of concerted misconduct 

demonstrated where plaintiffs collectively referred to all 

defendants in complaint as "the defendants"). Contrast Bailey

v. ERG Enters., LP, 705 F.3d 1311, 1321 n.12 (11th Cir. 2013)

(where plaintiffs only alleged misconduct against nonsignatory 

and did not name other signatory as party in complaint, second 

 

17 Some jurisdictions require allegations of "pre-arranged, 

collusive behavior" between the signatory and nonsignatory 

defendants in order to meet the concerted misconduct test. See 

Donaldson Co. v. Burroughs Diesel, Inc., 581 F.3d 726, 734-735 

(8th Cir. 2009) (citation omitted).
22

circumstance of equitable estoppel not implicated). In 

addition, the plaintiffs have consistently charged both System4 

and NECCS with equal wrongs, failing to distinguish them 

throughout the evolution of this case, thereby effectively 

asserting "interdependent and concerted misconduct" between 

them. Grigson 210 F.3d at 257. See Maldonado vs. Mattress 

Firm, Inc., U.S. Dist. Ct., No. 13-CV-292-T-33AEP (M.D. Fla. 

June 3, 2013) (equitable estoppel warranted to compel 

arbitration where signatory failed to distinguish among

defendants in alleging claims). For example, the plaintiffs 

allege that both defendants, "together," subjected them to 

"numerous misrepresentations" and "misclassified" them as 

independent contractors. Additionally, the plaintiffs allege 

that "[t]he written contracts between Defendants and the 

plaintiffs . . . are unenforceable" and unconscionable (emphasis 

added). There is not a single claim alleged against System4 or 

NECCS as a separate entity. See Brown v. Pacific Life Ins. Co., 

462 F.3d 384, 398-399 (5th Cir. 2006) ("[a]s the [plaintiffs] 

fail to allege tortious acts by [nonsignatories] that are 

separate and apart from [signatories], we can only conclude that 

the complaint asserts concerted misconduct by all parties").

In sum, because a decision maker must analyze the franchise 

agreements in assessing the merits of the plaintiffs' claims,

and the plaintiffs have pointedly alleged concerted misconduct 
23

between System4 and NECCS with respect to the agreements and 

their employment status thereunder, System4 can compel 

arbitration.

2. Validity of arbitration clause. a. Wage Act claims. 

Although System4 can compel arbitration despite being a 

nonsignatory, the plaintiffs further argue that their Wage Act 

claims are not arbitrable. Specifically, they ask us to extend 

our decision in Crocker, 464 Mass. at 14-15, and hold that the 

arbitration clause does not apply to their Wage Act claims given 

that it makes no explicit mention of such claims.

18 We decline 

to do so at this time.

The Wage Act provides, in relevant part: "[e]very person 

having employees in his service shall pay weekly or bi-weekly 

each such employee the wages earned by him to within six days of 

the termination of the pay period during which the wages were 

earned if employed for five or six days in a calendar week 

. . . . No person shall by a special contract with an employee 

or by any other means exempt himself from this section . . ." 

(emphasis added). G. L. c. 149, § 148. "We have consistently 

held that the legislative purpose behind the Wage Act (and 

especially the 'special contract' language) is to provide strong 

 

18 That the agreement makes no mention of wage claims is of 

little surprise, as it classifies the plaintiffs as independent 

contractors.
24

statutory protection for employees and their right to wages." 

Crocker, 464 Mass. at 13.

In Crocker, we considered whether a general release of 

liability contained in a termination agreement barred Wage Act 

claims. See id. at 12-15. We held that, given the Wage Act's 

strong statutory protection for employees and their right to 

wages, as seen through its specific prohibition on exemption

attempts, general releases fail to waive Wage Act claims unless 

they explicitly and clearly refer to such claims. Id. at 14-15. 

Crocker, although referencing our decision in Warfield, 454 

Mass. at 398-402 (arbitration clause applies to gender 

discrimination claims only if clause specifically mentions such 

claims), was not a case concerning arbitration. Rather, our 

overarching concern was that if general releases applied to Wage 

Act claims, employees might find themselves "unwittingly 

waiv[ing] their rights under the Wage Act." Crocker, 464 Mass. 

at 14-15. This, of course, was particularly problematic given 

the Wage Act's specific prohibition of contractual waivers of 

its rights and protections. The "special contract" prohibition 

within the Wage Act was "intended to thwart . . . schemes" to 

avoid compliance. DiFiore v. American Airlines, Inc., 454 Mass. 

486, 497 (2009).

The instant case is distinguishable, as arbitration 

agreements are not the equivalent of claim releases. See, e.g., 
25

Barbieri v. K-Sea Transp. Corp., 566 F. Supp. 2d. 187, 192 

(E.D.N.Y. 2008) ("An agreement to arbitrate is not a release of 

any claim . . ."). An arbitration agreement, as opposed to a 

general release, does not permit an employer to thwart or exempt 

itself from Wage Act obligations, but solely dictates the forum 

in which the plaintiffs' right to recovery will be determined. 

Accordingly, here, the plaintiffs did not unwittingly relinquish 

their right to recovery under the Wage Act upon signing the 

franchise agreements.

19

b. Unconscionable provisions. The plaintiffs additionally 

argue that the arbitration agreements are permeated with a 

series of unconscionable provisions which render them invalid 

under Massachusetts law. Specifically, the plaintiffs take 

issue with three aspects of the agreements: (1) a costsplitting provision, (2) a shortened statute of limitations, and 

(3) a confidentiality provision. They argue that, taken 

together, these provisions ought to render the entire agreement 

unenforceable.

As an initial matter, we note that not all of these 

provisions are unconscionable. "The determination that a 

 

19 Even if Massachusetts law did require an arbitration 

clause to specifically mention applicability to claims under the 

Wage Act, "such a principle" might be "preempted by the [Federal 

Arbitration Act]," Awuah v. Coverall N. Am., Inc., 703 F.3d 36, 

45 (1st Cir. 2012), as it could be interpreted to prohibit or 

disproportionately disfavor arbitration. See AT&T Mobility LLC

v. Concepcion, 131 S. Ct. 1740, 1747 (2011).
26

contract or term is or is not unconscionable is made in the 

light of its setting, purpose and effect" (quotation omitted). 

Miller, 448 Mass. at 679. Under Massachusetts law, "[t]o prove 

that the terms of a contract are unconscionable, a plaintiff 

must show both substantive unconscionability (that the terms are 

oppressive to one party) and procedural unconscionability (that 

the circumstances surrounding the formation of the contract show 

that the aggrieved party had no meaningful choice and was 

subject to unfair surprise)." Storie vs. Household Int'l, Inc., 

U.S. Dist. Ct., No. 03-40268 (D. Mass. Sept. 22, 2005), citing

Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 293 n.13 (1980).

As for cost-splitting,20 we made clear in Machado I that the 

mandates of the Wage Act would override this provision if the 

plaintiffs were successful in arbitration. See 465 Mass. at 

516-517. See also Awuah v. Coverall N. Am., Inc., 791 F. Supp. 

2d. 284, 287-288, 290-291 (D. Mass. 2011) (recognizing award of 

attorney's fees and costs to prevailing plaintiff is mandatory 

under Wage Act and awarding over $37,000 in fees and costs on 

individual arbitration awards of approximately $1,600 and 

$5,700). Accordingly, given that the arbitrator would be bound 

 

20 The agreement mandates that arbitration take place in 

accordance with the commercial arbitration rules of the American 

Arbitration Association (AAA rules). Rule 54 of the AAA rules 

provides that most arbitration costs "shall be borne equally by 

the parties, unless they agree otherwise or unless the 

arbitrator in the award assesses such expenses or any part 

thereof against any specified party or parties."
27

to award the plaintiffs, on prevailing, both the costs of their 

action as well as reasonable attorney's fees, this provision of 

the agreement is enforceable.

The agreement additionally provides for a one year or 

eighteen-month statute of limitations, which is shorter than the 

three-year period provided by G. L. c. 149 § 150. Massachusetts 

law permits contractually shortened limitations periods so long 

as they are "reasonable" and "not contrary to other statutory 

provisions or to public policy." Creative Playthings 

Franchising, Corp. v. Reiser, 463 Mass. 758, 760-761 (2012)

(holding contractual limitations period shortening time within 

which claims must be brought from six years to one year or 

eighteen months was valid and enforceable under Massachusetts 

law). "[W]e have long allowed the limitations period within 

which a claim arising from a contract may be brought to be 

shortened by contractual agreement." Id. at 759. The

plaintiffs have presented no evidence to suggest that the 

shortened statute of limitations at issue is unreasonable or 

contrary to public policy. Accordingly, it remains enforceable.

Finally, the plaintiff cites to cases in other 

jurisdictions in which confidentiality provisions have been 

deemed unconscionable because they may prevent potential 

plaintiffs from building similar cases against defendants. 

Courts have distinguished their own holdings on this issue based 
28

on the size of the putative class. Compare Ting v. AT&T, 319 

F.3d 1126, 1151-1152 (9th Cir.), cert. denied, 540 U.S. 811

(2003) (confidentiality provision held substantively 

unconscionable when applied to large class of customers), with 

Kilgore v. KeyBank, Nat'l Ass'n, 718 F.3d 1052, 1059 n.9 (9th 

Cir. 2013) ("small number of putative class members . . . 

mitigates" confidentiality provision concerns). Essentially, if 

the subject of arbitration is a contract that affects millions 

of people, the likelihood of future cases is increased. In such 

a scenario, the unavailability of an arbitral decision will deny 

these potential plaintiffs with access to precedent, thereby 

putting the defendant "in a far superior legal posture." Ting, 

319 F.3d at 1152. Here, while a motion for class certification 

has yet to be filed, the putative class consists of franchisees, 

a relatively small and known quantity of individuals. Any gains 

System4 might gather from the typical "repeat player" effect are

therefore diminished. This factual element is distinct from

cases involving a large and unknowable class of customers. Most 

importantly, however, "the enforceability of the confidentiality 

clause is a matter distinct from the enforceability of the 

arbitration clause in general." Kilgore, 718 F.3d at 1059 n.9. 

The plaintiffs would still be "free to argue during arbitration 

that the confidentiality clause is not enforceable." Id.
29

Nevertheless, even if we were to find any of the discussed 

provisions unconscionable, the franchise agreements contain a 

severability clause, requiring any unenforceable term to be 

severed. This is not the type of case in which "illegality 

pervades the arbitration agreement," Booker v. Robert Half 

Int'l, Inc., 413 F.3d 77, 84-85 (D.C. Cir. 2005), nor are the 

arbitration provisions "so one-sided that their only possible 

purpose is to undermine the neutrality of the proceeding"

(emphasis added; citations omitted). Nino v. Jewelry Exch., 

Inc., 609 F.3d 191, 207-208 (3d Cir. 2010) (arbitration 

agreement unconscionable where employer permitted to strike more 

members of arbitration panel than employee, employee must give 

notice of claims he intends to arbitrate while employer is under 

no such obligation, and employee must file grievance within five 

days of underlying events or lose right to arbitration). We are 

unconvinced that the contested provisions equate to such a level 

of unconscionability that the arbitration clause should not be 

enforced. Not only do the franchise agreements contain a 

severability clause, but also the plaintiffs identify only one 

potentially unenforceable provision (confidentiality), which 

"does not infect the arbitration clause as a whole." Booker, 

413 F.3d at 85.

Last, "[f]or agreements governed by the FAA, the statute's 

presumption of arbitrability means that 'in applying general 
30

state-law principles of contract interpretation to the 

interpretation of an arbitration agreement . . . due regard must 

be given to the federal policy favoring arbitration, and 

ambiguities . . . resolved in favor of arbitration.'" Joulé, 

Inc., 459 Mass. at 94, quoting Volt Info. Sciences, Inc. v. 

Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-476 

(1989). Given this strong public policy in conjunction with our 

holdings on the plaintiffs' Wage Act and unconscionability 

claims, we conclude that the arbitration clause at issue remains

valid.

Conclusion. The denial of the plaintiffs' motion for a 

ruling that System4's arbitration clause is unconscionable and 

cannot apply to wage claims in light of Crocker is affirmed. 

The grant of the plaintiffs' motion for a ruling that the 

arbitration clause cannot be enforced by System4 is reversed. 

The case is hereby remanded to the Superior Court for further 

proceedings consistent with this opinion.

So ordered.