Not So Fast: You Mean There’s A Potential Downside to Class Action Waivers In Employment Arbitration Agreements?
For a number of years now, an increasing amount of employers have adopted policies requiring their employees (or at least certain subsets of their employees) to enter into binding arbitration agreements that contain class action waivers. Adding fuel to the fire, the United States Supreme Court effectively put its stamp of approval on this practice in Epic Systems Corp. v. Lewis, 584 U.S. ___, No. 16-285 (2018), and many employers that previously abstained from the practice decided to jump in with both feet. Among other potential benefits, employers and management-side employment attorneys (including me) believe that class action waivers can act as a strong deterrent against employees/independent contractors getting involved in employment-related legal actions.
Still, class action waivers are not without potential drawbacks. Take the recent example of Terrell Abernathy, et al., v. DoorDash, Inc., Case No. C 19-07545, out of the United States District Court for the Central District of California. In this case, DoorDash, an online food delivery service company based in California, required its independent contractor delivery drivers to enter into agreements in which they agreed to resolve disputes through arbitration, and waived any rights they may have had to address legal claims through class or collective actions. In the event of a dispute, the agreements required the parties to pay certain arbitration filing fees - $300 for a driver, and $1,900 for DoorDash.
Somehow, someway, a plaintiff’s-side law firm (Keller Lenkner LLC in Chicago) managed to sign up over 5,000 of DoorDash’s delivery drivers as clients. Recognizing that the arbitration agreements and class action waiver clauses were likely enforceable, the firm cobbled together the $300 filing fee for each of the drivers (over $1.5 Million in total), and attempted to initiate over 5,000 separate arbitration actions with the AAA. In a reversal of the usual position of the parties to an independent contractor versus employer dispute, DoorDash refused to pay its portion of the contractually-required arbitration filing fees, which would have totaled close to $12 Million, asserting that there were significant deficiencies in the drivers’ filings. In response, in yet another reversal of the usual positions of the parties, the plaintiffs filed an action in federal court to compel the ridiculous number of individual arbitrations.
Although the court, through Judge William Alsup, determined that there were problems with the arbitration demands of a certain, relatively small, number of the drivers, it was clearly unimpressed with DoorDash’s efforts to avoid arbitration, and granted the motion to compel arbitration as to 5,010 of the plaintiffs. In reaching this decision, Judge Alsup stated the following:
For decades, the employer-side bar and their employer clients have forced arbitration clauses upon workers, thus taking away their right to go to court, and forced class-action waivers upon them too, thus taking away their ability to join collectively to vindicate common rights. The employer-side bar has succeeded in the United States Supreme Court to sustain such provisions. The irony, in this case, is that the workers wish to enforce the very provisions forced on them by seeking, even if by the thousands, individual arbitrations, the remnant of procedural rights left to them. The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.
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The DoorDash circumstances may very well be extreme. Nevertheless, the decision should act as a good reminder for all employers to avoid blindly adopting class action waivers in arbitration agreements. Instead, employers should perform as thorough a review as possible to determine whether such waivers are the most appropriate approach for them and, if so, how best to draft the waivers to protect against the scenario currently facing DoorDash, and similar nightmare situations.
Please contact John Gardner or any other member of DeWitt’s Employment Relations practice group with any questions regarding the use of arbitration agreements and/or class action waivers.