Opinion ID: 203024
Heading Depth: 2
Heading Rank: 3

Heading: The Merits: Enforceability of the Waiver Clause

Text: This case, then, does not involve an attempt to avoid arbitration at all, but only avoidance of a class waiver. The case does not call for invocation of much of the Supreme Court case law originally designed to counter judicial hostility to arbitration. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 n. 14, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) ([T]he [Federal Arbitration] Act was designed to overcome an anachronistic judicial hostility to agreements to arbitrate. . . .); Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (the Federal Arbitration Act reflects a liberal federal policy favoring arbitration agreements . . .). Nor does the issue here invoke more recent case law designed to prevent judicial incursions into the power of arbitrators to decide matters which the parties intended the arbitrators to decide. See Green Tree, 539 U.S. at 447, 123 S.Ct. 2402. Both the law of arbitration and the law of contracts set forth conditions under which a clause in such a contract may not be enforced, such as unconscionability. See 9 U.S.C. § 2 (written arbitration agreements shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract); see also Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (noting that [g]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2); Kristian v. Comcast Corp., 446 F.3d 25, 63 (1st Cir.2006). The issues in the case not only draw on the law of contracts, but also are akin to issues under the law of waiver of rights granted under federal employment statutes. That law focuses largely on whether the waiver was knowing and voluntary. See, e.g., Cabán Hernández v. Philip Morris USA, Inc., 486 F.3d 1, 8-9 (1st Cir. 2007) (finding that an employee's severance agreement constituted a knowing and voluntary waiver of Title VII rights); Rivera-Flores v. Bristol-Myers Squibb Caribbean, 112 F.3d 9, 12-14 (1st Cir.1997) (finding that an employee's severance agreement constituted a knowing and voluntary waiver of ADA rights); Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 181-83 (1st Cir.1995) (finding that an employee's severance agreement constituted a knowing and voluntary waiver of her ERISA rights). Congress has, through the Older Workers Benefit Protection Act, legislatively required that waivers of ADEA rights be knowing and voluntary. 29 U.S.C. § 626(f)(1). No such express statutory protection applies to waivers under the FLSA. So we consider the issues of knowledge and voluntariness insofar as they are pertinent under the state law doctrine of unconscionability. Unconscionability and related doctrines do not turn on whether, in a strict sense, a party has a constitutional, statutory, or common law right. The FLSA does provide that actions for FLSA violations may be brought as class actions. 29 U.S.C. § 216(b). This congressional allowance for class actions recognizes that class actions may be the more effective mechanism for redressing small claims, see Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 338, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980) (noting that the class-action . . . may motivate [plaintiffs] to bring cases that for economic reasons might not be brought otherwise), and permit citizens to function as private attorneys general. [3] The Supreme Court has noted that the FLSA itself is meant to offset the superior bargaining power of employers both for particular employees at issue and broader classifications, and to offset the resulting general downward pressure on wages in competing businesses. See Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290, 302, 105 S.Ct. 1953, 85 L.Ed.2d 278 (1985). For our purposes, it is not important to answer whether the FLSA gives plaintiffs a right to a class action in the same way one has a right to file suit under the FLSA. It is sufficient that the class action provisions give the plaintiffs an interest of some value to them in their employment. [4] State law, under the provisions of the FAA, provides our reference point. See 2 Barbara T. Lindemann & Paul Grossman, Employment Discrimination Law 2988-89 (4th ed. 2007) (The enforceability of employer-imposed arbitration agreements depends on the governing state's contract law and the facts of the individual cases, including the prominence and clarity of the arbitration agreement, whether the employee acknowledged the arbitration requirement, whether the employee had a `meaningful choice,' and whether the employee was well-educated. (footnotes omitted)). Plaintiffs argue the application of normal state law unconscionability analysis should be heightened somewhat because the FLSA is a federal statute protecting employee rights. Under Title VII and the ADA, we have applied an independent federal scrutiny of the adequacy of the notice of waiver of judicial rights because in the language of these statutes Congress referred to appropriate waivers. [5] Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 20 (1st Cir.1999) (Title VII); Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 554-55 (1st Cir.2005) (ADA). No appropriateness requirement exists in the FLSA, and we reject the argument. Rather, under the FAA, we approach this issue under normal state law unconscionability standards; here, we apply those of Massachusetts. In Miller v. Cotter, 448 Mass. 671, 863 N.E.2d 537 (2007), the Massachusetts Supreme Judicial Court (SJC) laid out its present standard for unconscionability as a defense to enforcing all or part of an arbitration agreement. Miller involved an agreement to arbitrate (but not a class action waiver) signed along with a contract for admission of a patient to a nursing home. The court found that the agreement was not unconscionable, and set forth a standard of case-by-case determination, looking at the setting, purpose, and effect of the agreement. The determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose and effect. Restatement (Second) of Contracts § 208, comment a (1981). Because there is no clear, all-purpose definition of `unconscionable,' nor could there be, unconscionability must be determined on a case by case basis ( see Commonwealth v. Gustafsson, 370 Mass. 181, 187 [346 N.E.2d 706 (1976)]), giving particular attention to whether, at the time of the execution of the agreement, the contract provision could result in unfair surprise and was oppressive to the allegedly disadvantaged party (emphasis added). Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 292-293, 408 N.E.2d 1370 (1980). Id. at 545. In giving further content to the agreement's setting, the SJC examined several factors, including: (1) the plaintiff's education and business sophistication, (2) the circumstances under which the plaintiff entered into the agreement, and (3) any pressure that was exerted by the defendant on the plaintiff. Id. The court noted that the arbitration agreement . . . was separate from and independent of the admissions agreement, and explicitly not a condition of admission. Id. at 546. The defendant did not exert any undue pressure on him to sign it, id. at 545, and the agreement was adequately explained in an extended admissions meeting with the plaintiff. Id. at 546. The SJC also found nothing objectionable about the agreement's purpose and effect. [6] Id. at 545. For a variety of reasons, we conclude that the waiver clause, under these circumstances, is unenforceable under state law. We do not need to reach the question of whether the waiver's purpose and effect is independently objectionable. Under state law, whether an enforceable contract exists, as in the case of whether an employment handbook is a contract, depends upon a host of considerations, including its content and the circumstances of its distribution. Campbell, 407 F.3d at 559 (citing O'Brien v. New Eng. Tel. & Tel. Co., 422 Mass. 686, 664 N.E.2d 843, 847-49 (1996)). Further, under state law, when waiver of statutory rights is at issue, Massachusetts generally requires that the waiver be both knowing and voluntary. See, e.g., Barton v. Brassring, Inc., 2006 WL 3492161, at  (Mass.Super.Ct. Oct. 26, 2006); Rowe v. Town of North Reading, 2001 WL 170655, at  (Mass.Super.Ct. Jan. 5, 2001). In our view, this statutorily created interest in class actions, even assuming it is waivable, was sufficiently strong that Massachusetts law would, on these facts, find the waiver would result in oppression and unfair surprise to the disadvantaged party. The waiver was not due to mere allocation of risk because of DRC's superior bargaining power. [7] Waters, 587 N.E.2d at 233. It is the combination of a series of events which leads us to a conclusion of unconscionability; no single event alone bears the weight of this conclusion and no broader implications should be taken from this opinion. The timing, the language, and the format of the presentation of the Program obscured, whether intentionally or not, the waiver of class rights. The waiver lacked both prominence and clarity. Massachusetts courts, under another fairness doctrine, have declined to enforce clauses due to short timing (here, the short notice over a holiday weekend). See, e.g., Cherick Distribs., Inc. v. Polar Corp., 41 Mass. App.Ct. 125, 669 N.E.2d 218, 220 (1996) (upholding finding that termination of a contract with only four days' notice was a breach of the implied covenant of good faith and fair dealing); Williams v. B & K Med. Sys., Inc., 49 Mass.App.Ct. 563, 732 N.E.2d 300, 305 (2000) (upholding a finding that refusal to allow an employee time to consider a severance offer as a violation of the implied covenant of good faith and fair dealing). There was nothing objectionable about the use of e-mail itself. But the content, the obscurity, and the timing of the e-mail and the failure to require a response raise unconscionability concerns. The e-mail employees received the Tuesday before Thanksgiving did not state it represented a modification to their employment contract at all. To the contrary, the attached memorandum clearly noted that the Program d[id] not limit or change any substantive legal rights of [DRC's] employees. It also described the Program as an enhanced program with the intent to create improved, reasoned, predictable, and reliable processes . . ., without mention of any potential disadvantages. The memorandum also failed to give notice. We do not decide whether it was the intent of the company to hide the waiver. The effect was to hide the waiver. Massachusetts law considers the risk of misrepresentation in assessing unconscionability. See Waters, 587 N.E.2d at 234 ([M]isrepresentation [is] recognized as [a] factor[] rendering a contract unconscionable.); cf. Campbell, 407 F.3d at 557-58 (noting that an e-mail describing arbitration as a kinder, gentler alternative to litigation without suggesting that it extinguish[ed] an employee's access to a judicial forum did not provid[e] fair warning that showing up for work the next day would result in a waiver of important rights). Massachusetts law considers, as part of unconscionability analysis, whether the provision is obscurely worded or buried in fine print of a contract. Zapatha, 408 N.E.2d at 1377. The lack of fair notice here continued into the format of the presentation, as the class action waiver was hidden in two paragraphs in a multi-page appendix to a fifteen-page document. Cf. Campbell, 407 F.3d at 557 (recognizing it as a fundamental flaw when an e-mail announcement contained nothing to imply, nor did it state directly that the Policy contained an arbitration agreement that was meant to effect a waiver of an employee's right to access a judicial forum). Massachusetts law also considers whether there was an opportunity to consult or to signify acceptance of a contractual term where waiver of statutorily defined rights are involved. See Miller, 863 N.E.2d at 539, 545 (noting that the arbitration agreement required a separate signature, but was not a requirement for admission to the nursing home); Zapatha, 408 N.E.2d at 1377 (noting that the plaintiff had been given the opportunity to consult an attorney before accepting). Here, DRC did not require any sort of affirmative response or acknowledgment by the employee. Cf. Campbell, 407 F.3d at 557 (noting that the `no response required' format . . . disguised the import of the communication, while [r]equiring an affirmative response . . . would have signaled that the Policy was contractual in nature). [8] This is just another factor in the mix. DRC attempts to avoid the consequences of the choices it made which effectively hid the waiver provision with the argument that, by now, enough notice has been provided for the class waiver that the waiver is enforceable. DRC phrases the argument in terms of the fact that plaintiffs continued to work after the effective date of the announcement and certainly learned of the waiver. We reject the argument. Nothing would be left of much of state law unconscionability analysis if that argument were accepted. The Campbell analysis is directly to the contrary; it analyzed the procedures by which the arbitration agreement was communicated before it became effective, even when an employee worked at the company for twenty months after the agreement was adopted. 407 F.3d at 548-49, 559. One additional factor in the mix is the comparison of how this program was handled with how the company handled other personnel issues. Plaintiffs point to two other programs which involved face-to-face training sessions, mailings to employees' homes, and announcements at company-wide meetings. DRC counters that these two other programs were the deviations from the standard procedure, and that the communication of this Program was the norm. For our purposes, it suffices that it was at least common practice, if not uniform practice, for DRC to employ methods of communicating policy changes that extended further than e-mail notifications before and newsletter articles after the fact. See Campbell, 407 F.3d at 557 ([While] e-mail was a familiar format for many forms of intra-office communication, . . . [the record] does not suggest that e-mail was a traditional means either for conveying contractually binding terms or for effectuating waivers of employees' legal rights.). We do not need to decide if class actions under the FLSA may ever be waived by agreement. [9] DRC strongly argues this point. The cases on which DRC relies find class waivers to be insufficient grounds to invalidate an arbitration agreement in total. They are not so instructive on the issues we do reach, which turn on the facts of this case and not an attempt to invalidate the arbitration agreement. See Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1378 (11th Cir.2005); Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir.2004); Adkins v. Labor Ready, 303 F.3d 496, 503 (4th Cir.2002); Horenstein v. Mortgage Mkt., Inc., 9 Fed. Appx. 618, 619 (9th Cir.2001) (unpublished per curiam order). We note there is also case law reaching the opposite result. See Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 984 (9th Cir.2007) (using a finding that class action waiver was unconscionable under California law to invalidate an arbitration agreement); Powertel, Inc. v. Bexley, 743 So.2d 570, 576-77 (Fla.Dist.Ct.App.1999) (using a finding that class action waiver was unconscionable under Florida law to invalidate an arbitration agreement). By like token, plaintiffs rely heavily on Kristian, 446 F.3d 25, which invalidated a prohibition against antitrust class action claims in an arbitration agreement. The Kristian holding rests on reasoning that the class action waiver constituted a weakening of antitrust law enforcement mechanisms in a manner inconsistent with congressional intent. Again, Kristian is pertinent to the questions we do not reach. We also do not reach the question of whether such waivers of FLSA class actions are per se against public policy under either the FLSA or the Massachusetts Fair Wage Law. [10] See, e.g., Beacon Hill Civic Ass'n v. Ristorante Toscano, Inc., 422 Mass. 318, 662 N.E.2d 1015, 1018-19 (1996) (contract in which neighborhood association promised not to oppose beer and wine license in exchange for promise of restaurant not to seek general alcohol license violates public policy); Smith-Pfeffer v. Superintendent of the Walter E. Fernald State Sch., 404 Mass. 145, 533 N.E.2d 1368, 1371 (1989) (Redress is available for employees who are terminated for asserting a legally guaranteed right (e.g., filing workers' compensation claim), for doing what the law requires (e.g., serving on a jury), or for refusing to do that which the law forbids (e.g., committing perjury).). We recognize that there is a policy debate about whether class action waivers essentially act as exculpatory clauses, allowing for violations of laws where individual cases involve low dollar amounts and so will not adequately address or prevent illegality. [11] See Myriam Gilles, Opting Out of Liability: the Forthcoming, Near-Total Demise of the Modern Class Action, 104 Mich. L.Rev. 373, 378 (2005) (arguing that sound public policy requires collective litigation be available for small-claim plaintiffs who would not have the incentive or resources to remedy harms or deter wrongdoing in one-on-one proceedings); David S. Schwartz, Enforcing Small Print To Protect Big Business: Employee and Consumer Rights Claims in an Age of Compelled Arbitration, 1997 Wis. L.Rev. 33, 37 (contending that displacing adjudication through pre-dispute arbitration clauses systematically reduces the legal liability of corporate defendants). The SJC has not addressed the issue and we have no need to predict what it would do.