Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Mass.: Domino's delivery drivers granted certification of class action, (Aug 2, 2016)

By Brandi O. Brown, J.D.

Two classes of Domino’s delivery drivers, one class comprised of those who had signed arbitration agreements and one class comprised of those who had not, were granted certification to litigate state law claims based on their employers’ retention of delivery charges paid by customers, ruled the federal district court in Boston. With respect to those drivers who had signed arbitration agreements containing class action waivers, the court held that the waiver was unenforceable, explaining that "collective action is ‘the very essence of labor rights’ granted to employees under the National Labor Relations Act." Accordingly, the drivers’ motions for certification were allowed, while the motions to dismiss filed by a group of Domino’s franchisees were denied (Tigges v. AM Pizza, Inc., July 29, 2016, Young, W.).

Prior suits. According to the complaints, the franchisees imposed and retained, a "delivery charge" on customers that was, in fact, a "service charge" that under state law should have been paid to the drivers. The franchisees in both complaints shared the same president, who was previously a delivery driver himself. The president was well-acquainted with lawsuits over this issue, having been named as a defendant along with Domino’s in previous putative class actions. In two of those class actions, the named plaintiff accepted an offer of judgment, thus ending the litigation. A third named plaintiff in a putative class action underwent, and lost, an exemplar trial, after which the court dismissed his certification motion.

The plaintiffs in the current lawsuits alleged violations of Massachusetts General Laws chapters 149 and 151, otherwise known as the "Tips Act" and the "Minimum Wage Act." According to the plaintiffs, delivery drivers were paid a "tipped minimum wage," which meant that their wage was lower than the regular minimum wage but purportedly supplemented by tips. They alleged that the franchisees imposed a delivery charge on customers that violated the Tips Act. They also alleged that the franchisees violated the Minimum Wage Act by failing to pay the charge to the drivers and by failing to comply with certain notice requirements. Both plaintiffs moved to certify their respective classes under Rule 23(b)(3).

Classes certified. Here, the court concluded that certification was appropriate for the two class suits. At base level, the court explained, the employees’ claims boiled down to whether the "delivery charge" charged to customers was, in fact, a "service charge" and, in turn, whether the employer violated state law by not distributing it to the delivery drivers. The latter question was the "one common question central to all" of the claims. Moreover, the franchisees did not contest that there was commonality to the claim that they had violated state law by paying the drivers a tipped minimum wage without notifying them as required by state law. The court rejected the argument that variance could result with respect to the distribution claim because of the differences in legal disclaimers made to customers, who might have ordered by phone, online, or through the mobile app. That variance could be addressed through the jury verdict slip and sub-questions, as could changes in the disclosure policies, explained the court.

The court recognized that it was parting company with a decision from the Eighth Circuit, Luiken v. Domino’s Pizza, LLC, which analyzed similar claims under Minnesota law. The standard applied under the Massachusetts Act, the court explained, was an "objective one" that "imposes a ‘type of strict liability’ to achieve its goal." Therefore, unlike in Minnesota, a trial on liability in Massachusetts "would unfold identically" whether it was prosecuted on an individual or class-wide basis.

Typicality. Noting that Rule 23(a)(3) requires that the named plaintiff’s claims be "typical" of the class claims and not that the claims be "identical" to those of other class members, the court concluded that the plaintiffs’ claims met the requirement. Both of the named plaintiffs, as well as the unnamed plaintiffs, were former or present pizza delivery drivers for at least one of the franchisees and they sought compensation for unpaid service charges under state law that arose from the franchisees’ practice of charging customers a delivery charge. Although the franchisees argued that some of their defenses would be unique to certain plaintiffs, the court concluded that this did not destroy typicality because those potential defenses did not threaten to become the focus of the litigation. The court also found that Rule 23(b)(3) was satisfied and rejected arguments based on Article III and standing.

Agreement had "Achilles’ heel." One of the defenses raised as part of the typicality argument was that the second class, the arbitration class, should not proceed at all. The second class came about because the franchise president, named as co-defendant in both class suits, had begun to "roll out a thoughtfully crafted arbitration agreement" as a result of the lawsuits. The named plaintiff in the second class signed the agreement. Although the agreement was not unconscionable, it had an "Achilles’ heel" in the form of a class-action waiver provision. In that regard the court agreed with the plaintiff that arbitration could not be compelled because the NLRA "confers on employees such as him a substantive right to act collectively," which the agreement unlawfully abridged. Although the franchisees argued that the Federal Arbitration Act mandated enforcement of the agreement, the court rejected that argument, explaining that "the NLRA precludes enforcement, in these circumstances, of a class-action waiver, even one with an opt-out clause, and the FAA is not to the contrary."

Substantive right. Specifically, the court explained that the NLRA bestows a substantive right upon employees. Employees have the right to engage in concerted activities for mutual aid or protection and filing a lawsuit "exemplifies" that type of concerted action. Moreover, the court explained, the FAA did not require enforcement of the class action waiver. That Act "does not place arbitration agreements on a ‘pedestal’ on which all other legal rights are to be sacrificed," the court explained. Instead, it "merely ensures" that such agreements are "on an ‘equal footing’ with contracts," the court explained. Finally, the court explained that the opt-out provision did not save the waiver. While this might have meant that the case would nonetheless proceed before an arbitrator on a class action basis, the arbitration agreement itself foreclosed that option, stating that if the waiver were deemed invalid then the permitted class "shall be subject to a court of competent jurisdiction and not arbitration."

The cases are Nos. 16-10136-WGY and 16-10474-WGY.

Attorneys: Stephen S. Churchill (Fair Work P.C.) for Atila Adolfo Tigges. Eric R. LeBlanc (Bennett & Belfort) for AM Pizza, Inc.

Companies: AM Pizza, Inc.

Cases: FranchisingDistribution MassachusettsNews