Machado v. System4

Practice area:

As previously reported, the Massachusetts Supreme Judicial Court will be reviewing the continued vitality of its decision in Feeney v. Dell Inc. (Feeney I), governing the enforceability of class action waivers in consumer arbitration agreements, in light of the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion.  Along with Feeney II, the court will also hear the appeal of Machado v. System4 LLC, a case concerning the application of Concepcion to claims under the Massachusetts Wage Act.

The plaintiffs in Machado are janitorial cleaning workers who have been classified by the defendant (System4) as franchisees.  They claim that, under the Massachusetts Independent Contractor statute, they should have been classified as employees, and that, as a result of the misclassification, they have wrongfully been denied wages.  They purport to bring their claims on behalf of themselves and others similarly situated.

Before the Supreme Court decided Concepcion, System4 filed a motion to stay the litigation pending arbitration, based on agreements containing arbitration provisions with class action waivers.  The Massachusetts Superior Court denied the request. After the Supreme Court decided Concepcion, System4 moved for reconsideration, which the Superior Court also denied.  System4 appealed, and the SJC accepted direct appellate review.  The Court has placed the case on the same hearing schedule as Feeney II, with argument expected to take place in the fall.

Machado raises important issues for companies facing employment class actions in Massachusetts, including 1) whether Concepcion effectively overruled Feeney I, requiring enforcement of class action waivers (the same issue raised in Feeney II), and  2) whether the Feeney I rationale, which precluded the enforcement of waivers of state consumer class actions as a matter of state public policy, applies to class actions for alleged violations of Massachusetts employment statutes.  System4 argues that the Feeney I rationale (that without class actions, small-value consumer claims will, as a practical matter, not be pursued), does not apply to the employment claims in Machado (in which the individual plaintiffs stand to recover substantially more money).

Of course, because they involve the application of a decision of the United State Supreme Court interpreting a federal statute (the Federal Arbitration Act), the decisions the SJC reaches in Feeney II and Machado  will be binding only in Massachusetts state courts.   Since the 2005 passage of the Class Action Fairness Act, most class actions are filed in or removed to federal court, and the SJC’s decisions in these two cases will therefore have limited impact.  Nevertheless, for those parties who continue to litigate class actions in Massachusetts state courts, these cases will be important to watch, as is the evolving federal jurisprudence on the applicability of Concepcion to class actions raising state law claims.

Written by former litigation partner, Donald R. Frederico.