SW Legal studies in Business

Class Action Prohibition in Arbitration Program Held Unconscionable
Description

Appeals court held that a clause in an employment arbitration program that prohibited class actions was invalid as unconscionable because it was vague, imposed without warning, and falsely stated that it did not limit the rights of employees.

Topic

Alternate Dispute Resolution

Key Words

Arbitration, Employment, Class Action Waiver

C A S E   S U M M A R Y
Facts

Skirchak was employed by DRC as Director of Compensation and Retirement Programs. After he resigned, he complained to the Department of Labor (DoL) about violations of the Fair Labor Standards Act by DRC’s failure to pay overtime. A DoL investigation resulted in DRC agreeing to pay $75,000 to employees in back pay and to change policies. Skirchak and others then filed a class action suit alleging violations of federal and state laws for failure to pay certain employees overtime because they were improperly classified as “exempt” due to managerial status. DRC moved to have the suit dismissed and compel arbitration under the company’s Dispute Resolution Program. The program required all disputes to go to arbitration individually and prohibited class actions. The court granted the motion to compel arbitration but struck as unconscionable the class action waiver. DRC appealed.

Decision

Affirmed. The class action waiver contained in the employer’s arbitration program was unconscionable under Massachusetts law and is, therefore, unenforceable. The waiver was not prominently featured in the text of the program nor clearly worded. The program was simply announced with no acknowledgement from employees; it was simply imposed and was misleading as the program stated that it did not “limit or change any substantive legal rights” when in fact it did—such as prohibit class actions.

Citation

Skirchak v. Dynamics Research Corp., 508 F.3d 49 (1st Cir., 2007)

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