Company’s attempt to enforce class-action waiver held unconscionable
Monday, May 01, 2006
A Federal District Court has denied a motion to dismiss a claim brought by employees seeking to bring a class action lawsuit against their employer under the Fair Labor Standards Act (FLSA) for nonpayment of overtime wages, in spite of a class action waiver found in the employer’s dispute resolution program. The case is Skirchak, et al. v. Dynamics Research Corp., Inc.
The court addressed both procedural unconscionability and substantive unconscionability.
Procedurally, the court found evidence that the company rushed efforts to implement the program, foregoing its usual procedures for implementing policy changes (e.g., not holding meetings or conducting manager training). The court also found evidence that the company had knowledge of several wage payment violations. The use of email as the sole means of communicating the new program created “significant” notice problems, such that the employees could not be expected to have knowingly waived their rights to a trial. The court also pointed to the fact that the no mechanism existed to track whether employees opened and/or read the email’s contents. Altogether, the evidence supported striking down the waiver on the grounds of procedural unconscionability.
The court further found the program to be unconscionable on a substantive basis. The terms of the program were ruled “so one-sided as to be oppressive” and tantamount to forcing employees to “prospectively …waive their statutory rights to sue in order to obtain or maintain their employment.” Such a result was, in turn, “inconsistent with the FLSA’s purpose of protecting the class of employees that possesses the least bargaining power in the workforce: ‘the unprotected, unorganized and lowest paid of the nation’s working population’.” The court also noted that allowing enforcement of the program as written would effectively remove the corporation’s incentive to abstain from actions leading to lawsuits.
Under these circumstances, the court declined to enforce the class action waiver.
Creativity seems to be the buzz among company counsel. Fortunately, courts aren’t buying everything management attorneys are dishing out.