Federal District Court Refuses Defense Motion to Dismiss Class Action and Enforce Arbitration Agreement Holding FAA (Federal Arbitration Act) Provision Barring Class Action FLSA Claims Unconscionable Under Specific Facts of Case
Employees filed a putative class action alleging violations of the federal Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201 et seq., for failure to pay overtime. The defense filed a motion to dismiss the class action complaint and to enforce a enforce the company’s “dispute resolution program” governed by the Federal Arbitration Act (FAA) which, in part, barred class actions. Skirchak v. Dynamics Research Corp., Inc., 432 F.Supp.2d 175 (D. Mass. 2006). (This class action defense has been raised in other cases discussed in separate articles.) The district court denied the defense motion, applying the well-settled rule that FAA agreements are subject to the standard defenses available in contract actions, including fraud, duress and unconscionability. Skirchak, at 178 (citing Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652 (1996)).
The court first addressed the language of FLSA itself, and acknowledged that Congress did not expressly guarantee the right to file class actions for FLSA claims. Skirchak, at 179 (citing Kuehner v. Dickinson & Co., 84 F.3d 316, 319-20 (9th Cir.1996)). But the court believed that the fact FLSA provides for collective actions, see 29 U.S.C. § 216, meant that Congress “implicitly” intended to allow such class actions, Skirchak, at 179.
Turning to the question of “procedural” unconscionability, the court found evidence that the employer knew it was in violation of state and federal overtime laws and “rushed” to implement the dispute resolution program to protect itself from such claims. Skirchak, at 180. The court then criticized several aspects of the program, including the manner in which employees were notified of the new program (concluding that the plaintiffs had “no meaningful choice as to whether to accept the waiver of class actions,” id.) and its wording (finding that it was “sufficiently confusing and technical style that a reasonable or average employee would not have been able to understand the significance of its terms,” id.). In the end, the district court concluded that the dispute resolution program was procedurally unconscionable. Id.
The court then addressed the issue of “substantive” unconscionability, and “conclude[d] that the class action provision of the [dispute resolution program] is so one-sided as to be oppressive.” Skirchak, at 180. “In this case, the imposition of a waiver of class actions may effectively prevent [the company’s] employees from seeking redress of FLSA violations. The class action provision thereby circumscribes the legal options of these employees, who may be unable to incur the expense of individually pursuing their claims.” Id., at 181.