Class action waiver

A class action waiver is a provision found in some contracts which prohibits a party from filing a class action legal proceeding against the other party, or both parties waiving the right to file class actions against each other. These clauses are most often found, and most often upheld, in the United States and agreements with American citizens.[1]

Contract law
Formation
Defences
Interpretation
Dispute resolution
Rights of third parties
Breach of contract
Remedies
Quasi-contractual obligations
Duties of parties
Related areas of law
By jurisdiction
Other law areas
Notes

Class action waivers may be found on a standalone basis, though they are more commonly found as part of an arbitration clause, and when paired with such clauses, frequently include jury trial waivers.[2] All three clauses are the subject to controversy and wide legal debate, with supporters claiming the tools are strong risk management tools and the expense that class action litigation presents both in regard to time and money, though advocacy groups argue that these clauses reduce the rights of consumers and employees and prevent companies from being held accountable for grievances such as wage and hour violations.[3][4] Class action waivers legality across countries and administrative decisions range in legality between jurisdictions, with some countries and provinces like France and Canadian province of Ontario banning such clauses, while the United States Supreme Court ruling in Epic Systems Corp. v. Lewis that such clauses are enforceable.

Contractual language

Most class action waiver clauses include this wording or a variation of it:

You and we agree that any dispute filed against each other must be on an individual basis and not as a class or collective action.[5]

Many countries have not tested a class action waiver in courts, though the international law firm CMS predicts that these clauses are unconscionable or unenforceable in Germany, Italy, Russia, and in England and Wales.[6][7][8][9]

Australia

Class action waivers remained untested in Australia until December 2021, where the Federal Court of Australia found it was an unfair contract term. In Karpik v Carnival plc, the court found that Australian Consumer Law in section 23 (which already bans standard form contracts) prohibits class action waivers.[1][10]

Canada

Class action waivers lack a uniform policy across Canada, as the Supreme Court of Canada has found that provincial legislation governs disputes. Nationally, though, in Seidel v. TELUS Communications, the court found that because a class action waiver was attached to an invalid arbitration agreement, the class action waiver was void.

On the provincial level, Ontario, per the Consumer Protection Act of 2002, has banned class action waivers. A court of appeals in British Columbia also found that class action waivers were unenforceable and unconscionable in Pearce v. 4 Pillars Consulting Group due to the contract in question being a standard form contract written by 4 Pillars and giving little bargaining power to Pearce.[11]

France

Under Article L. 623-32 of the French Consumer Code, as well as Article L. 1143-21 of the French Public Health Code, France considers class action waivers "abusive" and illegal within the country.[12][13]

India

Class action waivers have not been tested in Indian courts, though Order 1 Rule 8 of the Code of Civil Procedure allows for consumers, with court permission, to initiate class action lawsuits, which the Indian law firm Shardul Amarchand Mangaldas & Co notes can be problematic for the enforceability of class action waivers.[14]

United States

The Supreme Court of the United States has found on multiple occasions that class action waivers are legal. In AT&T Mobility LLC v. Concepcion, the high court ruled that class action waivers are legal under the Federal Arbitration Act as they significantly impact what the court saw as Congress's pro-arbitration stance on arbitration. The court reiterated its stance in Epic Systems Corp. v. Lewis. In Epic, Justice Neil Gorsuch authored a majority opinion which outlined that the US Congress, upon legislating the National Labor Relations Act of 1935, likely did not wish "to confer a right to class or collective actions in [Section 7 of the NLRA], since those procedures were hardly known when the NLRA was adopted in 1935". Justice Clarence Thomas concurred in a separate opinion, writing that the illegality of the class action waiver is a public policy defense, referring to McMullen v. Hoffman.[15]

Class action waivers, however, are not enforceable in cases of sexual assault or sexual harassment; the 117th Congress passed and President Joe Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act in 2022 which additionally prohibited the enforcement of class action waivers.[16] As of 2023, the bipartisan law has been used by employees of companies, most notably Rivian, to sidestep class action waivers.[17] Prior to Epic and AT&T, New York and California have attempted to ban class action waivers, and in the case of California, use such laws to additionally invalidate arbitration agreements or allow judges to refuse to enforce class action waivers in certain circumstances. National lawmakers have also pushed to pass the proposed Forced Arbitration Injustice Repeal Act, which would ban the enforcement of both arbitration clauses and class action waivers in many cases today seen by some as unfair or anti-consumer.[18][19][20][21]

U.S. States

Individual U.S. states have also made rulings which as of recent made steps towards banning class action waivers. Most recently in 2023, one of New Jersey's appellate courts ruled that class action waivers which are not tied to an arbitration clause under the Federal Arbitration Act are unenforceable.[22]

See also

References
  1. "Federal Court says no in an Australian first". Johnson Winter & Slattery. Retrieved 2022-08-27.
  2. "The use and enforceability of class action waivers in arbitration agreements in the United States". Practical Law. Retrieved 2022-08-24.
  3. "Are Arbitration Agreements Necessary for Class-Action Waivers To Be Enforceable?". The Florida Bar. Retrieved 2022-08-24.
  4. "Preparing for the COVID-19 class action: Is there an unexpected consequence lurking in your arbitration agreement's poison pill provision? | Insights". DLA Piper. Retrieved 2022-08-24.
  5. "Class Action Waiver Sample Clauses: 924 Samples". Law Insider. Retrieved 2022-08-25.
  6. "Class actions in Germany – law and rules". CMS Expert Guide. Retrieved 2022-08-25.
  7. "Class actions in Italy – law and rules". CMS Expert Guide. Retrieved 2022-08-27.
  8. "Class actions in Russia – law and rules". CMS Expert Guide. Retrieved 2022-08-25.
  9. "Class actions in England and Wales – law and rules". CMS Expert Guide. Retrieved 2022-08-25.
  10. "Australian Competition Law | ACL | s 23". Australian Competition Law. Retrieved 2022-08-27.
  11. Armstrong, Stephen; Bjorkquist, Sonia (September 7, 2021). "Riding the wave: recent developments with class action waivers". Osler. Retrieved June 24, 2022.
  12. "Class/collective actions in France: overview". Practical Law. Retrieved 2022-06-24.
  13. Pouzilhac, Aramis Law Firm-Cédric de; Carrega, Marion (2022-02-25). "In brief: arbitration agreements in France". Lexology. Retrieved 2022-06-24.
  14. "Enforceability Of Provisions In Contracts Restricting The Right To File Class Action Suits In India* - Contracts and Commercial Law - India". www.mondaq.com. Retrieved 2022-08-27.
  15. "Epic Systems Corp. v. Lewis, 584 U.S. ___ (2018)". Justia Law. Retrieved 2022-08-24.
  16. Bustos, Cheri (2022-03-03). "Text - H.R.4445 - 117th Congress (2021-2022): Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021". United States Congress. Retrieved 2022-08-25.
  17. "Rivian Employee Avoids Arbitration, Class Waiver Under 2022 Law". news.bloomberglaw.com. Retrieved 2023-09-20.
  18. Goldstein, Mark S.; Schmitt Minniti, Cindy (2017-07-31). "New York Court Rules that Class-Action Waivers Are Unenforceable". SHRM. Retrieved 2022-08-27.
  19. Skok, Gavin W. (2020-07-14). "California Strikes Again: Do Arbitration and Class Action Waiver Clauses Protect Your Clients Against a Class Action CCPA Claim?". CPO Magazine. Retrieved 2022-08-27.
  20. "Class Action Waivers Might Not be Enforceable When the Federal Arbitration Act Does Not Apply". Primerus. Retrieved 2022-08-27.
  21. "The FAIR Act: A New Bill Banning Mandatory Arbitration Agreements". JD Supra. Retrieved 2022-12-13.
  22. "NJ Appellate Division: Class Action Waiver Unenforceable Absent Mandatory Arbitration Agreement". New Jersey Law Journal. Retrieved 2023-07-19.
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