How to Draft Enforceable Class Action and Other Employer-Friendly Waivers

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Porreca v. The Rose Group was a class action lawsuit brought by Carly Porreca and Charles Walton, alleging that their employer, Applebee’s Neighborhood Grill and Bar, had violated the Fair Labor Standards Act. After Porreca was dismissed from the lawsuit, the restaurant management company that owned and operated the Applebee’s at which Porreca and Walton worked, the Rose Group, sought a stay of the litigation as well as an order (i) compelling Walton to arbitrate his claim individually, and (ii) barring him from pursuing a class action in that arbitration.  In support of this request, the Rose Group relied on the fact that Walton had signed an agreement binding him to the company’s Dispute Resolution Program, which specifically stated the following:

The Company and I agree that all legal claims or disputes covered by the Agreement must be submitted to binding arbitration …. We also agree that any arbitration between the Company and me is of an individual claim and that any claim subject to arbitration will not be arbitrated on a collective or a classwide basis …. 

Walton opposed, claiming that his agreement to such restrictions were unenforceable because they were unconscionable. In addressing this issue, the Eastern District of Pennsylvania first noted that Pennsylvania law controlled whether the contractual agreement at issue was unconscionable and that such law (like the law of other states) holds that a provision is unconscionable only if it is both procedurally and substantively unconscionable. The Court then went on to find that while the provision was procedurally unconscionable, it was not substantively unconscionable and, therefore, granted the relief the Rose Group had requested.

A number of subsidiary holdings and/or dicta in Porreca should be of particular interest to in-house counsel who are considering any type of contractual modifications to an employee’s right to sue. With respect to procedural unconscionability, for instance, the Porreca Court did not find it problematic that the arbitration clause and class action waiver were included in an 8-page, single-spaced standard form document that was provided to Walton at the same time he was given another stack of papers and was required to sign his name over 19 times. In this connection, the Court specifically noted that the waiver was “not an undecipherable tome requiring a doctorate degree and magnifying glass to read and comprehend,” and that there was “nothing onerous about an individual signing his or her name on [multiple] documents.”

As for substantive unconscionability, i.e., where “terms are … unreasonably or grossly favorable to one side and to which the disfavored party does not assent,” the Court’s decision provides even more insight:

  • If a statute allows a prevailing plaintiff to recover its costs and legal fees, an arbitration provision that precludes such fee shifting almost certainly would be unconscionable, but a      provision that allows, yet does not guaranty, fee shifting may be enforceable.
  • If a statute allows for liquidated damages in addition to other relief, an arbitration clause that is silent on that point is not unconscionable per se.
  • A tiered dispute resolution process that precludes an employee from filing arbitration until s/he first engages in non-binding mediation before a mediator selected by the company is not unconscionable, even if the company has no reciprocal obligation if it wishes to file arbitration against an employee.

In sum, any in-house counsel considering a mandatory tiered approach to disputes with employees, mandatory arbitration clauses and waivers of class action rights should read Porreca in addition to relevant authority in their own jurisdiction. Indeed, this may be a situation where in-house counsel want to consider whether any such agreement should have a choice of law and/or forum selection clause other than the company’s home jurisdiction (assuming that there would be a legitimate basis for the foreign law/forum to be selected).