Class Action Arbitration Waivers Unenforceable

Recently, the US Supreme Court has taken a hostile view of employment cases and consumer protections by gutting the class action rules, leaving many individuals without meaningful relief. In short, this has meant that companies who damaged consumers and employees consistently across many individuals but in very small doses, would avoid having to correct the problem or pay for the damages.

A Massachusetts Superior Court, however, may have drawn a useful line in the sand. Dell Computers wrote a provision into their sales contracts that required its consumers to waive their rights to bring disputes to court and waive their rights to participate in class actions.

Two consumers balked at Dell’s collection of sales tax on computer service contracts, requiring payments to Dell in their cases of $13 and $215 – claims too small on an individual basis to prosecute against Dell, but nevertheless leaving a potentially significant windfall to Dell if the consumers were prohibited from grouping together in a class action on behalf of all purchasers.

In response to those consumers, Dell argued that the cases would have to be brought in arbitration and that the cases could not be brought on behalf of all purchasers.
A Massachusetts Court agreed, in part. Yes, the cases must be brought in arbitration and not court, but no, Dell could not enforce the class action waiver. The Court noted that Dell might have been successful in its argument had it provided opportunity for meaningful relief, but Dell’s contract failed on that front.

Recently, employers have begun adding arbitration provisions to their employment contracts. While it remains unclear that those contracts will be upheld in all circumstances, careful litigation is a must.