In a recently published decision, the Washington Court of Appeals declared class action waivers in certain employment agreements unenforceable.
In Oakley v. Domino’s Pizza, LLC, plaintiff Oakley brought claims under the Washington Minimum Wage Act (WMWA) and wage rebate act. Oakley was a delivery driver for Domino’s supply chain (not a pizza delivery driver), where Oakley delivered raw materials to franchise locations, and some routes required he cross state lines. When he began working for Domino’s, he signed an agreement to arbitrate his claims under the Federal Arbitration Act (FAA) and also waived his right to participate in class actions. Despite this, he filed a class action lawsuit asserting wage and hour claims on his own behalf and on behalf of a class of drivers.
Two primary legal issues determined whether Domino’s request to force the claim into arbitration would succeed: (1) Whether the agreement was governed by State or Federal law; and (2) if State law applied, whether the class action waiver was enforceable.
As to the first issue, the Court found that the Federal Arbitration Act (FAA), which specifically exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” did not apply to this contract, because of the exemption. The Court first acknowledged that “a narrow interpretation [of the exemption] is appropriate” but then relied on 9th Circuit precedent finding even local drivers were “engaged in” interstate commerce if the goods they were transporting were in the interstate chain of commerce. That Oakley himself drove goods over state lines somewhat frequently led the Court to declare that this contract was exempt from the FAA.
The Court then examined the class action waiver contained within the contract under Washington contract law, finding it unconscionable, and therefore unenforceable. To find a contrary public policy necessary to establish unconscionability of the class action waiver, the Court looked to the State laws protecting concerted activities and collective bargaining. The Court effectively equated class action litigation to collective bargaining, finding “class action suits uphold the same public policy.”
One surprising factor in the Court’s analysis was that class actions are more profitable for plaintiffs’ attorneys. Oakley’s attorney claimed, and the Court found important, that the attorney would have been less inclined to take this case on an individual basis because it was a small claim and not lucrative enough for the attorney. No mention was made of the fact that claims under the WMWA and wage rebate act include recovery of reasonable attorney’s fees, making even small claims financially viable for the attorneys. Instead, the Court concluded that Oakley could not afford to hire an attorney, ignoring that such claims nearly always are litigated on a contingent basis.
Employer takeaways:
First, until the U.S. Supreme Court further clarifies what a “narrow” view of the “interstate commerce” exemption to the FAA actually means, any worker whose employment includes transportation of anything that has been out of state (for example, an Amazon “last mile” driver) could fall outside coverage of the FAA. The Federal Circuit courts are currently split on what level of interstate transportation is necessary to trigger the exemption.
Second, if the employees even arguably are engaged in transportation, employers in Washington should place less reliance in class action waivers, particularly when such waivers affect statutorily protected rights. Of course, the existence and enforceability of such waivers is perhaps the most important early issue to be decided in class action litigation. When class action waivers are enforceable, usually quick settlements follow. However, if a Washington court finds a class action waiver conflicts with litigant’s potential scope or availability of recovery—the purpose of the class action waiver—at least one Division of Washington Courts may find such clauses unconscionable. Plaintiff’s attorneys now have yet another avenue of attacking those waivers: they will make less money (that until now was merely implied).
One final reminder:
Even if the FAA is otherwise applicable, due to recent changes in that statute, an employee cannot be required to arbitrate or waive class action claims of sexual harassment or sexual assault.
10/18/22 Update:
SCOTUS has remanded a similar issue to the 9th Circuit to reconsider whether a freight driver who does not drive out of state is engaged in interstate commerce (and thus excluded from coverage under the FAA) or whether they are not involved in interstate commerce (and therefore can be covered by the FAA). We’ll keep you posted.
The legal issues impacting workplaces are ever changing (Employment Law in Motion!) and since publication, new or additional information not referenced in this blog post may be available.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
