April 17, 2020

Arbitration Agreements with Class Waivers: Be Careful What You Wish For

In Hamlet’s Third Act, Hamlet discovers a plot against his life and resolves to counter it by letting Rosencranz and Guildenstern, whom he suspects are complicit in the plan, be “Hoist with [their] own petard,” meaning, blown up by the very bombs they intended for Hamlet. 

Now, delivery apps Postmates and DoorDash find themselves in a pickle Shakespeare would appreciate, faced with millions in arbitration administrative fees after being targeted by thousands of coordinated individual arbitrations brought by couriers who used their apps and signed arbitration agreements that contained class waivers. Their predicament should be a wake-up call to employers throughout the country, who could soon increasingly face similar coordinated “individual” arbitrations designed to create settlement and other litigation leverage as a result of their arbitration agreements’ provision for class and collective action waivers. 

On May 21, 2018, the Supreme Court in Epic Systems Corp. v. Lewis held that employee arbitration agreements containing class or collective action waivers were enforceable. The high court’s blessing of the practice cemented what had already become de rigueur even before the decision, and today, arbitration agreements requiring individual arbitration have become standard practice for employers throughout the country. Indeed, liability for wage-and-hour claims on an individual basis usually will not scare employers; it is generally only through the aggregation of the claims of hundreds or thousands of employees through a wage-and-hour class or collection action that exposure can become significant or even ruinous for an employer. After Epic Systems, many employers saw it as a no-brainer to include class waivers in their arbitration agreements, with little or no downside.  

There is, however, a downside to including class waivers in arbitration agreements, and it was brought into stark focus in the Postmates and DoorDash litigations.

After DoorDash refused to pay what amounted to more than $12 million in arbitration administrative fees for the thousands of individual arbitrations, more than 5,000 of the claimants brought petitions to compel arbitration, all of which ended up before Judge Alsup in the United States District Court for the Northern District of California. Balking at the prospect of paying millions just in administrative fees, DoorDash argued that class treatment was appropriate, despite the existence of a class and collective action waiver in the arbitration agreements signed by their couriers. In granting the petition and compelling individual arbitration for the majority of the claimants on February 10, 2020, Judge Alsup wrote that “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….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.”    

Postmates is also subject to thousands of individual arbitrations (filed by the same firm that represents the claimants in the DoorDash cases) on behalf of couriers who were classified as independent contractors. In October, it was ordered to individually arbitrate the demands of those couriers. On March 25, 2020, it filed a lawsuit in the United States District Court for the Central District of California seeking declaratory and injunctive relief determining that attempts to pursue de facto class arbitration against Postmates through coordinated individual arbitration violate the parties’ agreement to resolve disputes in individual arbitration. Postmates is thus not challenging the claimants’ ability to bring individual arbitrations, but rather the method in which such arbitrations have been brought and are being coordinated in arbitration. The extent to which this tactic may be successful and used in the future by other plaintiffs’ firms may well turn on the degree to which the individual arbitrations are permitted to be coordinated. 

These cases underscore the potential danger in including class waivers in employee arbitration agreements, and employers should be aware that those waivers may well be used against them when evaluating whether to include them. However, it is important to note that the DoorDash and Postmates lawsuits may be unique to companies that facilitate gig employment; these results are not likely to be the norm or the result for many (if not most) employers. Indeed, for most employers, it is highly unlikely that hundreds or thousands of their employees would agree to file their own individual arbitrations. However, the risk may be greater for employers who employ large numbers of primarily lower-wage employees. Each situation is different, but all employers should carefully consider the risks. Some may decide that permitting the aggregation of claims is preferable to the prospect (even if remote) of paying millions in arbitration administrative fees.