Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Mass.: Ruling that franchisees must arbitrate Wage Act claims denied reconsideration, (Dec 10, 2013)

By Linda O’Brien, J.D., LL.M.

The federal district court in Boston has denied a motion by current and former janitorial service franchisees to reconsider its ruling that the franchisees must arbitrate their Wage Act claims under the arbitration clauses of their franchise agreements (Awuah v. Coverall North America, Inc., December 5, 2013, Young, W.).

Coverall North America, Inc. was a franchisor that provided janitorial cleaning services. Pius Awuah, along with other current and former franchisees of Coverall, filed a class action against Coverall, alleging breach of contract, deceptive trade practices, and violations of the Wage Act and labor laws. In 2011, the court certified the class as to all franchisees who had not signed an arbitration clause in their franchise agreements. In the final judgment, the court included, as part of the certified class, franchisees who bought their franchises through consent-to-agreements on the grounds that they were not properly notified of the arbitration clause in those agreements and, therefore, not bound by the arbitration clause. The U.S. Court of Appeals for the First Circuit, in reversing and remanding that decision, ruled that the arbitration notices were incorporated by reference and those franchisees must arbitrate their claims under the arbitration clauses of their franchise agreements. State law did not impose a heightened notice requirement for arbitration agreements and, even if there was such requirement, a special notice requirement would be preempted by the Federal Arbitration Act (FAA). The plaintiffs filed a motion for reconsideration.

The plaintiffs’ argued that special notice was required before wage claims be subjected to arbitration agreements and the arbitration clause in the franchise agreements, which did not specifically refer to wage claims, could not be enforced.

The district court, in following the Massachusetts Supreme Court decision in Crocker v. Townsend Oil Co, 464 Mass. 1 (2012), found that an agreement signed by an employer that includes a general provision to arbitrate all claims will only be enforceable as to rights under the Wage Act if such agreement is stated in “clear and unmistakable terms.”

The FAA states that arbitration agreements shall be valid, irrevocable, and enforceable except for grounds that exist in law or equity for the revocation of the agreement. In reviewing relevant provisions of the FAA, the court noted that, in its view, the statute did not preempt state law that required express notice to submit Wage Act claims to arbitration. However, following the binding precedent of the First Circuit decision in this case, the court held that a special notice requirement would be preempted by the FAA which requires courts to place arbitration agreements “on the same footing as other contracts.”

The case is No. 07-10287-WGY.

Attorneys: Anthony L. Marchetti (Marchetti Law, PC) for Pius Awuah. John F. Dienelt (Piper Rudnick LLP) for Coverall North America, Inc.

Companies: Coverall North America, Inc.

Cases: FranchisingDistribution MassachusettsNews