Class Action Waivers In Arbitration Agreements In Massachusetts

A flurry of new decisions from the Massachusetts Supreme Judicial Court (SJC) and the U.S. Supreme Court have approved the use of class action waivers in arbitration agreements. These decisions affirm that employers in Massachusetts can dramatically reduce their exposure to employment law class actions by adopting arbitration agreements that contain class action waivers.

In Massachusetts, employers may require employees to enter into arbitration agreements as a condition of employment (or as a condition of continued employment).1 These agreements mandate that employees resolve employment law disputes before an arbitrator rather than in court. Until recently, however, it had been unclear whether an arbitration agreement can waive an employee's ability to bring a claim as a class action (that is, a legal action filed by one person on behalf of many other similarly situated individuals). On one hand, the SJC ruled in 2009 that arbitration agreements could not ban class actions in cases where the statute under which the employees sought relief explicitly authorized the filing of class actions.2 Since many employment law statutes contain this type of language, some practitioners in Massachusetts assumed class action waivers in arbitration agreements would not be enforced in lawsuits involving these statutes. On the other hand, in 2011, the U.S. Supreme Court found in AT&T Mobility v. Concepcion that a similar state ruling in California was preempted by the federal arbitration statute, and the Supreme Court ruled in favor of enforcement of the class waiver in an arbitration agreement.3

Earlier this summer, the SJC revisited the class action waiver issue in a pair of decisions, Feeney v. Dell, Inc.4 and Machado v. System4 LLC.5 In Feeney, the SJC deferred to the U.S. Supreme Court's finding in Concepcion that state law cannot automatically prohibit class action waivers, regardless of what a statute may say about class actions. However, the SJC carved out an exception. It found that if a person can prove that he or she could not realistically bring a case individually, because the cost and complexity of the case far exceeds the potential recovery of individual damages, then the class action waiver was void. For instance, in Feeney, the plaintiffs' potential damages in their consumer fraud case were as low as $13 each. The SJC reasoned that no one would bring a complex consumer case for so little money, and therefore the only way such claims could...